Monti, in Berlin, Calls for Growth Policies in Europe

BERLIN — Italy’s technocratic prime minister, Mario Monti, arrived in Germany on Wednesday with a sharp message for Chancellor Angela Merkel that austerity alone was not the answer to Europe’s sovereign debt crisis, and that the political and economic situation in Italy could deteriorate rapidly without more assistance from European institutions.

In an interview with the German daily newspaper Die Welt, published the morning he was to meet with Mrs. Merkel, Mr. Monti said Italian sacrifices alone would not pull the country out of its debt problems. Without evidence of concrete assistance, “a protest against Europe will develop in Italy, also against Germany, which is viewed as the ringleader of E.U. intolerance, and against the European Central Bank,” Mr. Monti said, using the initials for the European Union.

“I cannot have success with my policies if the E.U.’s policies don’t change,” Mr. Monti said, pleading for help in particular in bringing down interest rates. Otherwise economic discontent could force Italy to “flee into the arms of populists,” he said.

Germany’s solution to the crisis has been to push for structural changes in the economies of deeply indebted countries like Greece, Spain and Italy, along with austerity plans aiming for balanced budgets. But the resulting economic dislocation has been painful, and unemployment has risen rapidly even as government spending has been cut. Mass demonstrations have broken out in Greece and Spain, and clashes between protesters and the police have rocked Athens and other Greek cities.

While Mr. Monti’s comments may have been a tactical move intended to soothe anger among his constituents at home, they also neatly encapsulated the rising anti-German sentiment among the unemployed and pensioners in other countries, who have seen their benefits reduced.

“The basic problem is that Germany still doesn’t treat the euro problem as though it is a collective problem,” said Sergio Romano, a political commentator for the Milan daily newspaper Corriere della Sera. “They are moving in that direction; they are contemplating the loss of further sovereignty in the euro zone. And Mr. Monti is telling Mrs. Merkel to speed it up.”

Although Mrs. Merkel pushed to have Mr. Monti replace his predecessor, Prime Minister Silvio Berlusconi, she may live to regret her move. His more interventionist views on a range of issues, including more aggressive action by the European Central Bank and the issuance of collective debt — known as euro bonds — coincide far more neatly with those of President Nicolas Sarkozy of France, giving Mr. Sarkozy more leverage in his negotiations with Mrs. Merkel.

At a news conference after the meeting here on Wednesday between Mr. Monti and Mrs. Merkel, she seemed to acknowledge Mr. Monti’s plea, agreeing that European leaders would have to look for ways to spur growth and job creation. But she did not endorse new stimulus measures that would require greater government spending.

Mrs. Merkel may have been speaking with an eye on the home front as well, amid signs on Wednesday that the weakness of the European economy was beginning to drag down Germany, too. Government estimates said Wednesday that the German economy contracted by 0.25 percent in the fourth quarter of 2011 compared with the previous quarter, raising the likelihood that stagnation could turn into outright recession.

But the report on German growth illustrated the strengths as well as the weaknesses of Europe’s largest economy. Germany’s gross domestic product grew at a healthy 3 percent clip in 2011, steadily reducing unemployment even as joblessness rose in many other countries.

“I don’t think that the fourth quarter result is going to change anyone’s mind in Germany,” said Sebastian Dullien, an economist and senior policy fellow at the European Council on Foreign Relations. “There won’t be significant pressure on the German government to change their stance very soon.”

In the meantime, governments continue to follow Berlin’s prescription for cutting spending and raising taxes. On Wednesday, Spain’s Parliament approved the new center-right government’s first package of austerity measures, worth about $19 billion and devised to put the country back on track to meet its budget deficit targets.

Cristóbal Montoro, the budget minister, told lawmakers that the package — which couples $11.3 billion in spending cuts with nearly $8 billion in tax increases — was a response to “the extraordinarily difficult situation Spain is experiencing.”

Mariano Rajoy, the prime minister, warned that more austerity measures would have to be introduced in March, when the government will present its delayed budget for 2012. Moody’s, the credit rating agency, recently estimated that Spain would need to make budget savings this year of about $50 billion, more than double the package approved by lawmakers on Wednesday.

Spain’s fiscal position has been deteriorating more rapidly than expected, in part because of debts piled up by its semiautonomous regional governments.

In Italy last month, Mr. Monti pushed through Parliament a $40 billion austerity package, which included tax increases and an overhaul of the pension system. But the changes have done little to assuage the doubts of borrowers, who continue to demand a significant premium for Italian bonds over what Germany must pay. Mr. Monti’s government of unelected technocrats is trying to pull the country back from its deep indebtedness by trimming a bloated public sector, fighting corruption and reducing tax evasion, a task that puts it in a precarious position without a base of party support to fall back on.

Economists are increasingly concerned that the tide of austerity will drive Europe back into recession. “This risks strangling countries with a high debt, and imposing a strict discipline to every country could make the recessionary effect across Europe even larger,” said Paolo Manasse, a professor of economics at the University of Bologna.

What Mr. Monti’s government and others with high debts are looking to avoid is “the Greek spiral,” Professor Manasse said, where budget cuts lead to slower growth, lower revenues and ever deeper budget cuts. “To tighten in good times, not in bad, is not just an economic principle, but common sense.”

German politicians have scored points with voters at home by excoriating fellow members of the euro zone for their supposed profligacy, a situation Mr. Monti highlighted with his comments about Germany’s acting as “the ringleader” of intolerance. In struggling countries on the periphery, Germany is seen as having benefited from the turmoil, with borrowing costs close to zero and a weakened currency that helps its exports.

Werner Weidenfeld, director of the Center for Applied Policy Research at the University of Munich, said Mr. Monti’s comments in Die Welt on Wednesday were a “very smart message that went in two directions.” Mr. Monti let Italians know he had not forgotten them and was standing up on their behalf to Germany. And he reminded Mrs. Merkel of the pressures he faced at home, and the dangers if he lost control.

Mr. Monti, Mrs. Merkel and Mr. Sarkozy will meet next week in Rome to discuss plans to combat the sovereign debt crisis, with a European Union summit meeting planned for the end of the month.