Reuters There are weeks when it can sound as if the European sovereign debt crisis is going round in circles. Barbed exchanges between Italian Prime Minister Mario Monti and German Chancellor Angela Merkel carry echos of a prolonged dialogue of the deaf between Greece and Germany two years ago when Berlin was resisting calls to bail out Athens. Then as now, a debt-stricken government pushing through spending cuts, tax rises and economic reforms pleaded for lower interest rates and stronger European (read German) support to convince citizens the pain is worthwhile. Now as then, a chancellor constrained by public hostility to bailouts and convinced only market pressure can keep profligate nations on a path of righteousness is turning a deaf ear, saying there is no need to act since no one is requesting aid. The delay in acting to help Greece in early 2010 undermined financial market confidence in the 17-nation single European currency, which has still not been wholly restored, and raised the cost of the eventual rescue. But it's not all deja vu, because Germany has far more confidence in Monti's Italy than it ever had in Greece. As a result, EU officials expect Merkel to relent and agree to a bigger European financial firewall in March once euro zone leaders have signed two key treaties sought by Berlin on budget discipline and the rules of a permanent rescue fund. In the meantime, Italians fretting about tax rises and public spending cuts can draw some consolation from their country's declining borrowing costs on the bond market despite Standard & Poor's double-notch downgrade of Italy's credit rating to BBB+ on Jan 13. “The problem is that despite these sacrifices, we do not see any concessions from the EU, such as in the form of lower interest rates,” Monti complained to the German newspaper Die Welt on the eve of a visit to Berlin earlier this month. If there was no tangible reward for their efforts, Italians could turn against Europe and against Germany, “seen as the leader of EU intolerance”, he warned. He has also voiced support for common euro zone bonds as a longer-term solution, which is anathema to Merkel. __
