Italian Prime Minister Mario Monti on Thursday warned of a disastrous scenario if Europe's leaders fail to craft a meaningful solution to the EU's intensifying economic woes at next week's summit, The Guardian reports. However, the breakdown and ultimate dissolving of the Eurozone would likely result in more political than economic consequences, he said.
Regardless, Monti's warning only reinforces how fragile Europe is right now, hinting it may be on the brink.
Monti told The Guardian and other European news outlets that if leaders are unsuccessful, "there would be progressively greater speculative attacks on individual countries, with harassment of the weaker countries," seemingly asserting that the union would start to attack itself.
The attacks would be focused on countries who refused to adhere to EU guidelines, as well as countries like Italy who played by the rules but racked up piles of debt, Monti told The Guardian.
Next week's summit will reportedly focus on addressing long-term plans for tightening banking agreements between countries in an attempt to strengthen the banking system that took a hit after bailouts for Greece, Ireland and Portugal didn't work out as great as leaders hoped.
"A large part of Europe would find itself having to continue to put up with very high interest rates that would then impact on the states and also indirectly on firms. This is the direct opposite of what is needed for economic growth," the Italian leader cautioned.
The Guardian has more of Monti's potential apocalyptic prediction:
Outlining the result of a failure at the talks, Monti said that, faced with creeping economic paralysis, "the frustration of the public towards Europe would grow", creating a vicious circle. "To emerge in good shape from this crisis of the eurozone and the European economy, ever more integration is needed," said Monti. Yet, if the summit failed to resolve the problems quickly, "public opinion, but also that of the governments and parliament… will turn against that greater integration".
Monti said he could see the beginnings of the process "even in the Italian parliament, which has traditionally been pro-European and no longer is".
He made his remarks hours after his predecessor, Silvio Berlusconi, acknowledged that his party had bled support because of its backing for the Monti government's unpopular budgetary measures and spoke openly for the first time of the electoral advantage it could derive from torpedoing Monti's non-party cabinet of technocrats.
Monti signalled that the key eurozone leaders were working on a plan designed to halt the spread of debt contagion while satisfying Germany's refusal to sanction financial irresponsibility. The plan, he said, was one of the "absolutely necessary" outcomes of next week's summit.
The first outcome, he said, would be a clear sign of the eurozone's willingness to integrate further "in such a way that Europeans know where they're going… [and] the markets are convinced that, having given birth to the euro, the will [of the member states] to make it indissoluble and irrevocable is there and will be strengthened by other steps towards integration".
He warned: "There may not be – indeed, there will not be – a fully-fledged, detailed blueprint, but there will some strong elements and a short road – I hope short, a few months – to get from there to the overall project."
Other minimum requirements were "a fuller banking union, with advances in terms of integrated, and if possible unified, supervision"; "a European deposit guarantee" system; and the plan that will be on the table on Friday for "new market-friendly policy mechanisms" to help out countries under attack – provided they had complied with EU demands for fiscal discipline.
On Thursday figures indicating that the eurozone is slipping into recession heightened fears that Italy will follow Spain in asking Brussels for rescue funds. Only a strong performance from Germany stopped the currency union from contracting in the first quarter. But separate data showed the German private sector suffered a severe downturn in May, made worse by a slump in manufacturing.
Without recourse to strongly growing export markets, Italy can expect to see its growth hit for another year, analysts said.
Monti said the proposed new mechanism would kick in "when there is a recognition by the European authorities of respect for the rules on public finance and structural reforms". Making intervention conditional on good behaviour could offer a way of providing relief for countries like Italy and Spain, while meeting German demands for fiscal discipline.
Monti avoided giving details but said he was "very favourable" to the purchase of the bonds of countries under attack. The present system, of assistance to the banking sector by way of the state, led to an increase in public debt that raised the yields – and cut the value – of government bonds, which in turn weakened the finances of the banks, creating "a disagreeable spiral… That is why measures to de-couple this are being studied", he said.
The Guardian notes that the U.S. economy has also felt the effects of a lagging European Union along with China, which posted its eighth consecutive annual drop in production.
Many experts have long predicted that the collapse of the European Union would undoubtedly send economic shockwaves that reach the U.S. and other countries across the world.
The Italian prime minister is reportedly set to meet with Germany's Chancellor Angela Merkel of Germany, French Socialist President Francois Hollande, and Spanish Prime Minister Mariano Rajoy ahead of next week's meeting in a last-ditch effort to finalize a game-plan to save the Eurozone, and essentially the rest of the world's economies.