Merkel Takes Aim at Italy With Demand That Euro Members Live Within Means

By Patrick Donahue - Oct 22, 2011 7:56 PM GMT+0700

Chancellor Angela Merkel took aim at Italy as typifying profligate government, saying the resolution of Europe’s crisis will only emerge if countries slash their debt and live within their means.

Italy’s outstanding debt at 120 percent of gross domestic product can’t be blamed on speculators, Merkel told a group of women in her Christian Democratic Union today. Markets demand higher interest rates on Italian bonds because the level of such debt is “seen very critically,” she said.

“We want to and we must defend the euro -- and we will -- but not to the extent that we forget what the source of the crisis is,” Merkel said in a speech in the western German city of Wiesbaden before heading to Brussels to tackle the crisis.

European leaders are converging on the Belgian capital in an attempt to narrow differences on how to address the crisis that threatens to spiral out of control. Merkel’s swipe at Prime Minister Silvio Berlusconi’s government also comes a month after the Italian leader was caught on a wiretap making denigrating comments about the chancellor.

Merkel and Berlusconi may meet in Brussels at a gathering of leaders aligned with the European People’s Party before heads of state and government gather tomorrow.

Even as President Barack Obama calls on European leaders to lay aside their differences, Merkel took the U.S. government to task for failing to manage its own debt.

“It doesn’t look much better in America, even if the markets aren’t quite concentrating on that,” Merkel said today.

Merkel also reiterated her objection to jointly issued euro bonds, saying that while such an arrangement could act initially as a salve to markets, common borrowing would lead to “solidarity in mediocrity.”

“This will be the message for the coming years,” Merkel said. “It will be very, very hard -- our task is no longer to live beyond our means. That goes for Germany and for every other European country.”

To contact the reporter on this story: Patrick Donahue in Wiesbaden, Germany at pdonahue1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net