Just one day before a summit of the Eurozone leaders where it is expected the details of the second attempt to save Greece will be finalized, Italy has announced it is unable to reach a consensus regarding its own austerity requirements. Among the measures rejected by Prime Minister Silvio BerlusconiÃ¢â‚¬â„¢s much-divided coalition government was a bid to raise the retirement age from 65 to 67 years of age.
Italy has been under pressure for months to reduce its spending in the face of an estimated 600 billion euros ($833.1 billion) in debt scheduled to mature over the next three years. Italy desperately needs to raise capital to meet these expenditures and European Union leaders have pledged to continue to buy Italian bonds to ensure Italy can raise sufficient capital. In return, however, the EU expects Italy to address its chronic budget deficit.
It is not clear yet how EU leaders will respond to ItalyÃ¢â‚¬â„¢s failure on this front, but for now, there are greater worries.
In a bit of drama earlier today, German Chancellor Angela Merkel bluntly rejected the wording of a leaked draft of the communiquÃƒÂ© to be issued as part of WednesdayÃ¢â‚¬â„¢s summit. According to the media source, the message will include a line pledging the Eurozone leadersÃ¢â‚¬â„¢ agreement with the ECB continuing its plans for Ã¢â‚¬Å“non-standard measuresÃ¢â‚¬Â.
Ã¢â‚¬Å“Non-standard measuresÃ¢â‚¬Â is code for the ECBÃ¢â‚¬â„¢s recent practice of buying Italian and Spanish sovereign bonds in the secondary market. By buying bonds at market value in this way, it is hoped that this will be seen by investors as a sign of support and confidence in the ability of the two nations to repay this new debt.
It did not take long for Merkel to respond. Arguing that she did not support politicians dictating policy to the ECB, Merkel flatly stated that the comment was Ã¢â‚¬Å“not acceptedÃ¢â‚¬Â by Germany.
In the early stages of the Greek debt crisis, the yield on Greek debt skyrocketed in response to investor demand for a premium in exchange for assuming the extra risk of investing in Greece. By buying debt in the market in this manner, the ECB is hoping to prevent a similar fate for Spain and Italy.
Since implementing the program some eight weeks ago, the ECB has amassed more than 170 billion euros ($236.1 billion) in Greek and Italian debt.
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