It is always dangerous to claim a victory against Angela Merkel. After the last eurozone summit, Mario Monti and Mariano Rajoy emerged triumphalist. The agreement and Italy’s football victory over Germany were “a double satisfaction”, the Italian prime minister crowed. His Spanish counterpart returned to Madrid in celebratory mood, too. Rescue fund cash could now be injected directly into Spanish banks. But he forgot that in the eurozone crisis, there are no victories – only deals.
Four weeks later, Spaniards have discovered the true price of Mr Rajoy’s “victory”: another austerity package and probable losses for small investors who gave money to the banks. Bond yields are near euro-era highs. Miners, firefighters and civil servants have taken to the streets. They blame the government for deceiving them until the truth was too ugly to conceal.
The speed with which the tide has turned in Spain should act as a warning to Mr Monti, the other “winner” at last month’s meeting. Despite his natural caution, he announced that he had secured the right to use eurozone rescue funds to buy Italian bonds, shielding his country against ballooning borrowing costs. What is more, there would be no additional strings attached to the rescue – a claim that the Italian press trumpeted emphatically but was swiftly denied by Germany and other creditor countries.
Italy may, of course, never have to use this mechanism. But as external demand for Italian debt dries up and domestic banks struggle to replace foreign investors, it is ever more likely that Rome will have to tap the rescue funds. Were Italy to demand some help from Europe – some analysts predict this could happen as early as the autumn – Rome would not get away with the pot of money and a pat on the back. The main lesson of the June summit – and of what has subsequently happened to Madrid – is that creditor countries will only open the tap in return for more supervision. Cash begets control.
Mr Monti has only one way to avoid sounding like Mr Rajoy – speaking truth to the political parties that support him and to the Italian people. While he has a right to deny that Italy will need external help, he should make it clear that if it happens additional conditions will almost certainly be imposed.
Having dispelled the illusion of an easy way out of crisis, Mr Monti should double his reform efforts, which fizzled after a promising start. The government’s spending review should go much further, freeing up resources to cut taxes on labour. He should also take steps to improve competitiveness, including moves to overhaul the justice system.
The government should also be clear about the costs of the project of closer integration it is pursuing in Europe. A fiscal union and a banking union are an agreement and not a gift. While many in Rome consider them a quick way to bring down sovereign yields, these involve considerable transfers of power to Brussels.
Centralised supervision will draw the curtain on the cosy relationship between the banks and politicians that Italians are used to. Parliament will lose at least some of its control over the budget.
For closer integration to succeed, voters need be made aware – if not consulted on – the cost that this entails in terms of lost sovereignty. Without engaging with Italians, any deal Mr Monti strikes in Brussels will backfire at home, just like Mr Rajoy’s Pyrrhic victory last month.
Italy remains, at heart, a europhile country. Widespread mistrust towards an ineffective, often corrupt domestic political class means that Italians are typically more willing than most to hand over powers to Brussels.
And in many instances, Brussels has delivered. External constraints such as the Maastricht treaty and the stability and growth pact have brought order to the country’s public finances. European regulations have helped to shake up sectors such as banking or telecoms, with tangible benefits for consumers.
Unless he makes his case for Europe, the project Mr Monti holds so close to his heart could collapse in his own backyard. Voters who feel they have been deceived could turn their heads to eurosceptic forces. And, with an election in 2013, there will be no shortage of politicians willing to ride the anti-euro wave.
Mr Monti would then look back at the time he has spent celebrating victory over Ms Merkel and wish he had devoted more of it to explaining the stakes to his own citizens.
The writer is an FT leader writer