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Economy

Cooperative tension: Italy's Monti on how the eurozone crisis begot policy unity

ROME -- At the height of the eurozone crisis, there was considerable doubt as to whether European countries could work together to escape their predicament. Much was made of conflicting interests between leading countries, such as Germany, and smaller ones. The turmoil shook markets worldwide. But former Italian Prime Minister Mario Monti, who took office during that critical time in 2011, says there was nevertheless a sense of togetherness. After all, he recalled in a recent interview with The Nikkei, the nations were "all in the same boat."

     Monti looked back at those tense days and his career at the center of the European integration process. The following is an edited transcript of the interview.

Mario Monti, former prime minister of Italy

Q: Back when you were a European Union commissioner, you must have been enthusiastic about integration.

A: Indeed, we are talking about 1995 or 1994. I was then an academic economist.   

     I was enthusiastic about the European Union, as I had always been. My involvement started when I was 21, when I was writing my thesis and decided to train in Brussels.

     I was keen about the integration process because of two fundamental factors. One, integration meant opening up.

     The EU was also a powerful way to improve each of the integrated countries, to modernize their structures. Italy, and I think each member state, benefited a lot from having to stick to various standards -- the freedom of the orderly market economy, consumer protection, budgetary discipline.

     This is why, many years later when I was put in charge of Italy, I always spoke very positively of the EU. I never said, as many governments did when pushing for unpleasant things and sacrifices, that it was "because Brussels asked us to do this." I always motivated people by saying we have to do this out of respect for future generations of Italy -- like dealing with a heavy deficit.

     Brussels asked us to do so based on the principles Europe planned together. 

Q: When you were commissioner, did you feel a lot of frustration working in Brussels?

A: Commissioners, I wouldn't say forget their countries, but try to apply European principles and policies on totally equal grounds. Frustration? Yes, on occasion. It's not a task without obstacles -- in my case, to create and develop a single market, to make it competitive and to have the rules of competition respected.

     I remember many debates with Japanese economists, politicians and media, as well as Americans, particularly at trilateral meetings in Tokyo. There was concern that a huge, single European market would create a fortress that would harm other industrial parts of the world -- Japan and North America. I always said I was convinced regional integration would be not a stumbling block to global integration but a building block for it.

     But of course, you said frustration. Being commissioner means being ready for confrontations with big companies and governments. I had plenty of those in 10 years in Brussels.

Q: Do any conflicts stick out in your mind?

A: This may seem like a secondary matter, but we abolished duty-free business within the EU. That was a tough one because most governments of large European countries wanted to continue with that tax exemption, which was at odds with a single market.

     I remember a big confrontation with the German government over eliminating state guarantees to the public banks in Germany, Landesbank in particular. That was a long political and legal battle the commission won. 

     There were many discoveries of cartels, resulting in big fines. Or the prohibition of some big mergers, the most high-profile one being General Electric's acquisition of Honeywell, which we did not authorize. Or some cases of monopolization.

     All this was done -- and I see a lot of merit in this -- by applying European treaties and rules, ultimately to the benefit of the citizens, the consumers.

Q: Were you surprised when, in 2011, Italian President Giorgio Napolitano asked you to become prime minister?

A: I was surprised, because it was not a usual thing. But the country was not in a usual situation. I felt a lot of responsibility.

Q: The pressure from the financial markets must have been immense.

A: Indeed, we were in the midst of the eurozone government debt crisis. There was widespread fear that what happened to Greece might happen to Italy, except that the size of Italy would have made it very, very difficult to isolate the problem without a spillover to the whole zone. That is why all the eyes of Europe and the rest of the world were on Italy.

     The financial market pressure was condensed to one indicator, which every man on the street knew at the time: the spread between the interest rate on Italian government securities and the German benchmark. That peaked at 574 basis points, the day the president of the republic called me. It is now 150.

     We introduced huge pension reforms, in a couple of weeks, plus other fiscal measures and some structural reforms in terms of liberalization of competition. We strengthened the justice system against corruption.  

     To try to calm the markets, we decided not to apply for any financial assistance. We were under pressure to do that. But to ask for assistance would have meant intrusive control of our domestic policies. I thought we could do it ourselves, of course with a lot of pain, which would have been necessary anyway. At least, without surrendering any specific portion of sovereignty, other than what is normally surrendered because we are all members of the EU. 

Q: Did anyone argue that, if you were to ask for financial help, things might move faster? Did you ever consider that yourself?

A: There was that argument. But then people in the market saw that we moved, especially in the initial phase, quite fast without external pressures, acting as a responsible country. So we kept our place among peers at the table of the European Council, and we used that in the subsequent months, in particular at the end of June 2012. 

     We prepared a real strategy for economic diplomacy, which after a lot of negotiation was successful. We had all the heads of governments -- including Germany and very, very rigorous countries like the Netherlands and Finland -- adopting a unanimous declaration that it was necessary and justified to have stabilizing interventions for the government bond markets of countries that were doing their homework correctly but still experiencing high spreads.

     This was a political decision at the highest level, which was followed after a few weeks by the European Central Bank's decision to create a mechanism for outright monitoring transactions, ready in case of a need for a powerful safety net. The ECB felt comfortable creating it because, after our statement in June, it was assured that no governments objected.

     If we had accepted or asked for financial assistance, like any debtor, we would have lost the power to negotiate. We could not have contributed to improvements, substantial improvements like the one I just described in June 2012, which was not introduced for Italy. It was introduced for anybody, potentially, and it was therefore an improvement in the overall governance of the eurozone.

     I am proud that Italy was able, in spite of the pressure it was under, to contribute very, very significantly to this.

Q: I get the impression you think the crisis eventually made the euro stronger -- that better mechanisms arose from the chaos. Is that an accurate assessment?

A: First of all, we cannot speak of a "euro crisis." The euro is a currency, and it was a currency never in crisis during this crisis. You can measure the strength of a currency in terms of domestic purchasing power or external purchasing power. On neither ground did the euro lose ground. If anything, many in Europe would say the euro is too strong, not weak.

     What we saw was a combination of fiscal and banking crises in many countries within the eurozone. In the aggregate, the eurozone's debt to gross domestic product ratio, even at the time, was lower than those of the U.K., U.S. or Japan -- which is not so difficult.

     It is correct to say that to cope with the crisis -- too late, too slowly and with much hesitation -- it was possible to substantially improve the governments of the eurozone, in terms of mechanisms for fiscal discipline, in terms of the European Stability Mechanism, in terms now of steps toward a banking union.

     If you think of it, it is normal, though unpleasant, that a system of integrating countries becomes more mature after the shock of a crisis. More integrated policies imply the symmetric surrender of portions of sovereignty. This is politically costly and does not tend to happen in normal times, but a crisis opens the eyes. Unless sovereignty is exercised more jointly, it is lost.

Q: There was a sense that some governments were uncooperative. U.K. Prime Minister David Cameron said he was glad Britain had not adopted the euro. What did you make of the negativity toward the currency? 

A: There were moments of tension. Don't forget the pressure these meetings were held under -- to reach decisions before markets reopened. There were huge expectations. Meetings lasted until 2 a.m., 3 a.m., 4 a.m. Yes, at a meeting in December 2011, when the fiscal compact was discussed, the U.K. decided not to come on board. So did, less visibly, the Czech Republic. But now the new Czech government, which I visited the other day, wants to sign the fiscal compact.

     There was a lot of tension and great difficulty, but I would call it cooperative tension. There was a sense of being in the same boat. Although the interests of Germany may not have coincided with the interests of Cyprus, there was a sense of commonality of interests. Of course, in Italy's case, everybody felt they had much at stake because of the domino effect that would have followed. France, for example, felt that it could be next in line. Happily that did not happen.

Q: Did all of this stress affect your health?

A: Probably I was overworked, but I slept at night. Shorter because I had a lot of work to do. I was meeting with counterparts of other countries. Each of them had a small table of amounts of treasury bills and bonds of Italy that had to be issued each month to finance the deficit. They were asking, will you make it this month? But I felt we were doing what was necessary. And the country, especially for the first few months, responded very positively. They were slightly fed up with conventional politics. There was less political jargon and more discussion of hard realities.

Q: Do you think the momentum of European integration has slowed? Where do you see the process going?

A: The eurozone crisis, now that you make me think of it, has been paradoxical. It slowed down market integration, and the appetite for integration among people and countries. There is integration fatigue. On the other hand, the response to the crisis has brought about more integrated policy. 

     What will happen next? I think once the European election is over, the EU political system will have to do two things. One is to deliver better, constructively taking care of the discontent shown by citizens. And it will need to be more united on the essentials, particularly from economic and strategic points of view.  

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