Italy Supports EU Austerity

Italy strongly supports the fiscal discipline agenda demanded by European Union leaders, Italian Prime Minister Mario Monti said Friday.

Mr. Monti said his government fully endorsed the so-called "fiscal compact" that EU leaders and the European Central Bank say is necessary to set euro-zone public finances on a better trajectory. However, he noted that "even in the exercise of discipline, one can be subject to the limits of a short-term approach."

Mr. Monti referred explicitly to the fact that Germany and France—"the very countries who lead the demand for fiscal rigor today"—violated the stability and growth pact in 2003.

However, Mr. Monti has also argued that excess fiscal austerity in the short run may prove counterproductive by squelching eventual economic recovery. Italy has passed three austerity budgets this year, which are aimed at cutting its fiscal deficit by almost 6% of gross domestic product over the next two years.

Mr. Monti, speaking at a conference at the Bank of Italy, also said there now existed risks that the single currency could lead to conflicts between its member countries. He noted he was once skeptical of that argument.

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