Monti takes issue with Merkel

The Italian prime minister has warned German Chancellor Angela Merkel against maintaining resistance to joint eurozone instruments aimed at fighting the debt crisis and an emerging banking crisis.

Connected via video link to a European Commission conference held in Brussels Thursday, Mario Monti came out in support of a proposal seeking to directly recapitalize struggling eurozone banks through Europe's new bailout fund, the European Stability Mechanism (ESM).

Under current rules, euro bailout loans can only be provided to governments, which can in turn use them to recapitalize banks.

In addition, Monti demanded a so-called banking union in the currency area with a single regulatory body, a joint deposit insurance scheme to prevent bank runs, and the joint issuance of eurozone debt.

"Countries at the core of the system, most notably Germany, should really reflect deeply but quickly on these aspects," he said.

Monti added that Germany's "own best product for export" was a culture of stability that Berlin was risking undermining because of a "lack of promptness in setting up the necessary instruments to limit contagion."

Waning support

Fiscally conservative countries like Germany have repeatedly rejected proposals that effectively aim to introduce collective eurozone liability for the fiscal problems of individual members.

However, on Wednesday the proposals reappeared in an EU Commission catalog of crisis-fighting measures that the European Union's executive deemed vital to prevent contagion - notably in Spain where the latest front in the bloc's debt war has emerged.

Arguing that German resistance was putting European public support for austerity "at risk," Monti warned that sooner or later there was going to be a "backlash against the very fiscal and structural discipline that we are imposing."

uhe/sgb (dpa, Reuters)