by Marzia De Giuli
ROME, Sept. 13 (Xinhua) -- The German ruling to back the European Stability Mechanism (ESM) paves the way for a pro-euro change of strategy, but must not raise any expectation over an easy solution of the EU economic crisis, Italian analysts said Wednesday.
"In the short term, the verdict will stabilize markets as the ECB is now prepared to buy bonds of one to three-year maturity. Borrowing costs will lower, making it easier for crisis-hit economies to manage their debt," Giorgio Arfaras, president of Milan-based SCM SIM SPA financial services, told Xinhua.
But in his view, things appear not so simple in the long term. "Should countries seeking a bailout do not stand by their commitment, the ECB would not intervene, triggering another financial crisis. In that case, the EU central bank may finally be forced to overstep its mark," he said.
Antonio Villafranca, head of Program on Europe at the Milan-based Institute for International Political Studies, or the ISPI, agreed that the German verdict would provide a partial relief.
"For a long time, markets had been asking the EU to indicate clearly what instruments it would use to fight its financial crisis. Finally a clear scenario has been outlined today, and we can sigh with relief," he told Xinhua.
Villafranca said that Germany's green light to the ESM, along with recent steps towards a single banking supervisor for the euro zone, were "signals of a change of strategy in the EU" that would help tackle the crisis and discourage speculation in the short term.
While addressing the EU parliament in Strasbourg on Wednesday, European Commission President Jose Manuel Barroso described the plan for a single supervisory mechanism as "the stepping stone to the banking union" on the union's path to evolve into a "federation of nation-states."
However, the ongoing crisis in not only financial and banking, but also economic, Villafranca noted. Therefore, despite the positive effect on markets, the so-called spread shield will be not enough to fight "the crisis of real economy" in weaker EU countries such as Spain and Italy, he added.
Apart from the necessary common policies, "finding the right way to stimulate growth amid stagnant productivity, competitiveness and labor is a fundamental task of individual nations of the euro zone," he said.
Italian Prime Minister Mario Monti and Economic Minister Vittorio Grilli have been repeating over the past weeks that Italy does not need to seek bailout funds as its economic fundamentals are solid.
"However, the capacity of solvency and liquidity must be clearly distinguished," Villafranca warned, adding that Italy is solvent in the medium and long term but can fall into a liquidity crisis in the short period.
For this reason, the country's main challenge will be keeping borrowing costs low while stimulating the economy so as to reduce its record high debt-to-GDP ratio, which stands at over 120 percent, he said.
Should Italy achieve the growth goal in the wake of reforms carried out by Monti's emergency government of technocrats in the past 10 months, it will not need external help, the analyst said.
"But of course this is a black or white option. Italy might also consider the gray one and find it convenient to ask for bailout despite its additional cost. It is a matter of realism, on which Italian leaders will have to think over very carefully," he added.
Earlier on Wednesday, Germany's top court cleared the way for the country to ratify the long-awaited 500-billion-euro (644-billion-U.S. dollar) permanent bailout fund, following the European Central Bank's unveiling last week of a new bond-buying plan to lower the borrowing costs of the euro zone.
The verdict, hailed as a "great news" by Monti, was seen by local analysts as a signal that the EU's crisis fighting mechanism was taking shape, and boosted markets where yields for weaker eurozone economies continued to fall.
In Italy, the spread against German bonds closed at 339 basis points, the lowest level since April, while the risk premium charged on Spanish bonds fell below 4.0 percentage points for the first time in six months.
Stock market in Milan registered the best performance in Europe on Wednesday, closing up 1.19 percent. Madrid and Athens also ended in positive territory, respectively up 0.78 percent and 5.33 percent.
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