Europe's Central Bank To Buy Bonds To Steady Stocks

Originally published on August 8, 2011 9:05 am
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RENEE MONTAGNE, Host:

And Sylvia, how did Italy react to the move by the European Central Bank?

SYLVIA POGGIOLI: Last night, after intense conference calls between world leaders, French President Nicolas Sarkozy and German Chancellor Angela Merkel issued a joint statement urging Rome to carry out the ECB's draconian order. It'll be a tough pill for Berlusconi to swallow, but he really has no choice.

MONTAGNE: Well, we saw something like this happen in Greece, when it was obliged by its European partners to take austerity measures, very tough austerity measures that were met with violent protests. How do you think Italians will react to this belt-tightening?

POGGIOLI: Well, Italy has been in recession for some time, so Italians are already feeling squeezed. And the brunt of these measures - as is usual in these cases - will fall on middle-class wage earners. So I do expect big protests in coming months. But again, Italy has no choice. This is not a country on the periphery like Greece, Ireland and Portugal. Italy is the eurozone's third-largest economy. So it's no longer simply an Italian crisis, but a major crisis for the single currency itself.

MONTAGNE: But, you know, ever since the euro crisis began with Greece a year and a half ago, European leaders seem to be grappling in the dark for solutions, unable to speak with one voice. Italy is such a big economy there. Is this crisis in Italy a wake-up call?

POGGIOLI: The economic powerhouse Germany has been the most reluctant to sign onto any decisions that would displease its voters. The crisis has also revived deep- seeded prejudices, northern Europeans describing southerners as lazy and always on vacation, although it turned out that Germans have more vacation days than Greeks. And when they finally do take decisions, such as the creation of the bailout fund three weeks ago, that facility still has to be ratified by member states' parliaments, and that could take months.

MONTAGNE: And this euro crisis has been compounded by the U.S. downgrading by Standard & Poor's. How have Europeans reacting to that? I mean, is there a sense of now Americans also know what it feels like?

POGGIOLI: And the second major challenge for Europeans right now is how to combine austerity and growth. Many analysts now say it's crucial to promote growth and job creation, which would mean accepting budget deficits and a degree of inflation.

MONTAGNE: Sylvia, thanks very much.

POGGIOLI: Thank you, Renee.

MONTAGNE: NPR's Sylvia Poggioli, speaking to us from Rome. Transcript provided by NPR, Copyright NPR.