Monti Says “Bridge” Divide Between Austerity, Growth

The Italian premier said there could be efforts to stimulate demand but not runaway government spending.

Italian prime minister Mario Monti said the divide between proponents of austerity and growth in Europe “needs to be bridged.”

In an interview with CNN’s GPS that was broadcast on Sunday, the Italian leader said there could be effort to stimulate demand, “if it is demand to remove bottlenecks in the supply of goods and services, so broadly investment demand.”

Monti, a former European commissioner, was appointed in November of last year to save Italy from a Greek style debt crisis. Since putting government spending in his country on a sustainable trajectory, he has shifted his emphasis to improving Italian competitiveness and boosting growth.

He admitted that Italy is “destroying domestic demand through fiscal consolidation” but cautioned against runaway stimulus spending. “If it is an across the board crusade for more demand, then I believe that the German reluctance to that is not entirely unfounded,” he said.

Germany insists that eurozone nations must rein in public spending to restore consumer and investor confidence and further liberalize their economies to compete in a global market. Left-wing leaders, including the newly-elected French president François Hollande, believe in expansionary fiscal and monetary policies to prop up consumption.

Policymakers in Berlin are particularly wary of the European Central Bank printing money to finance government borrowing in the heavily indebted periphery of the single currency union.

As Monti put it, “The ECB in its autonomy has been able to find new techniques of intervention.” Indeed, it purchased some €1 trillion in Italian and Spanish bonds last year and loaned many billions more at virtually zero interest rates to weak European banks.

The Germans fear that this will cause inflation to rise and remove the incentive on the part of high debt nations to balance their budgets and reform. “It’s important that we get away from the idea that it always costs money to get economic growth,” said Chancellor Angela Merkel this month.

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