Italy's Prime Minister warns policymakers against dividing Europe

Italy's prime minister urged European policymakers on Friday to beware of dividing the continent with their efforts to fight its debt crisis, warning against a "short-term hunger for rigour" in some countries, in a swipe at Germany.
--- Merkel wins reprieve with defeat of FDP referendum
--- Banks resisting pressure to buy eurozone debt
--- Monti wins vote on Italian austerity package
German Chancellor Angela Merkel gained some respite from domestic pressure to take a tougher line in the eurozone crisis when Eurosceptics hostile to more bailouts lost a referendum in her junior coalition partner, the Free Democrats, aimed at blocking a permanent rescue fund.
Meanwhile, a first draft of a planned fiscal union treaty among euro zone countries and aspiring members, published on Friday, showed that countries could be taken to the European Court of Justice if they fail to meet agreed budget targets. Merkel - under pressure from the revered Bundesbank to force debt-saddled eurozone countries to reform and save their way out of crisis with austerity measures - has led a push for automatic sanctions for deficit "sinners" in the bloc.
This has fed concerns that excessive belt-tightening in southern countries could send their economies into a negative spiral with no prospect of growing out of the crisis, while feeding resentment in the prosperous north. Italian Prime Minister Mario Monti said Europe's response to the debt crisis "should be wrapped in a long-term sustainable approach, not just to feed short-term hunger for rigour in some countries. "To help European construction evolve in a way that unites, not divides, we cannot afford that the crisis in the eurozone brings us ... the risk of conflicts between the virtuous North and an allegedly vicious South," he told a conference in Rome.
The head of Italy's largest labour federation CGIL said on Wednesday the country risks a "social explosion" over austerity measures, and unions plan more protests against them. In Germany, turnout in the FDP bailout referendum fell short of the necessary quorum of one-third of the party's membership, and only 44.2 percent voted for dissident lawmaker Frank Schaeffler's motion against the planned European Stability Mechanism.
A victory for the Eurosceptics could have brought down Merkel's centre-right coalition, but the outcome still left the FDP split, with its public support in tatters. The euro held steady above $1.30 on Friday and Spanish and Italian bonds rallied even though investors remain nervous of a possible Standard & Poor's credit rating downgrade of several euro zone countries, including AAA-rated France.
French officials have sought to prepare the public for the likelihood that Paris will lose its top-notch rating for the first time since 1975, playing down the potential setback and focusing attention instead on neighbouring Britain. Euro zone officials said the potential downgrade of up to 15 the 17 euro zone countries could raise the cost of borrowing for the region's existing EFSF bailout fund but would not make a big difference to its operations.
EFSF chief Klaus Regling told the Rome conference there was about 600 billion euros available to fight the crisis, more than Italy and Spain's combined funding needs for 2012. Euro zone countries are to hold a conference call next Monday to agree on a boost to the International Monetary Fund's lending capacity, as part of measures to help cope with the debt crisis, to which they will commit 150 billion euros, Slovak Finance Minister Ivan Miklos told Reuters.
The United States has refused to offer any additional funding and it remains to be seen how much non-European economies such as China, Russia, Brazil and India are willing to commit. In Italy, employers' lobby Confindustria on Thursday slashed its 2012 gross domestic product (GDP) forecast, projecting a contraction of 1.6 percent from growth of 0.2 percent seen previously. It said even that estimate was optimistic and based on a gradual easing of the euro zone debt crisis.
Monti's government easily won a parliamentary vote of confidence on Friday for a package of tax hikes, spending cuts and pension reform aimed at meeting Italy's goal of balancing its budget in 2013. The measure goes to the Senate next week. In Greece, where the debt crisis began two years ago, a senior official of the EU/IMF troika team negotiating terms for a second bailout package said there was no guarantee that talks on the private sector's contribution would lead to a voluntary deal involving the bulk of its creditors.