By NICOLE WINFIELDAssociated Press
ROME (AP) - Italian Premier Mario Monti insisted Wednesday the country doesn't need a European bailout because its public finances will improve, but acknowledges work still needs to be done to cut government spending, boost economic growth and create jobs.
Monti spoke at a press conference with German Chancellor Angela Merkel after meeting about Europe's debt crisis. It was their first encounter since European leaders in Brussels last week agreed to use the continent's bailout fund to funnel money directly to struggling banks and let countries following budget rules apply for financial aid without stringent conditions attached.
Monti, who had pressed for such a deal, insisted Italy didn't need a bailout to help it pay its government debt because its budget deficit was low compared with many other European countries and forecast to improve.
As of the end of 2011, official European statistics put Italy's deficit at 3.9 percent, just above the EU limit of 3 percent. Spain's, by contrast, was much higher at 8.5 percent.
Italy's big problem is the economy is in recession and it has a high public debt load equivalent to 120 percent of GDP. Investors fearing Italy may have trouble repaying that debt have been asking for high interest rates to lend to the country.
The measures announced by European leaders last week have helped relieve the fear that Italy may default. In particular, making it easier for countries to access European bailout funds has convinced investors that Italy has a credible financial backstop should it run into trouble financing itself.
Agreeing to loosen the conditions for bailouts was not easy, however, and was the source of heated debated between Monti and Merkel in recent weeks and at the summit.
Going into the summit, Monti had issued a thinly-veiled jab at Merkel over her opposition to allowing European governments to share debt obligations. Sharing debt is another way to spread individual countries' debt risk across Europe, but Merkel continued to oppose them at the summit.
With debt-sharing ruled out, Monti pushed for the European leaders at the summit to agree to other measures that might increase confidence in Italy's finances. Easing conditions for countries to take bailouts was one of them.
Monti has lamented that Italians have endured the effects of government spending cuts and tax hikes, but that Italy's government borrowing rates remained high in financial markets.
By Wednesday, the two leaders were downright chummy, with Monti calling Merkel by her first name and emphasizing their "excellent" relations.
Merkel, for her part, praised the speed with which Monti's government has pushed through structural reforms and insisted that it was in Germany's interest to keep Italy from failing.
"If our neighbors in Europe aren't well, eventually we Germans won't be in good shape," she said.
Monti nevertheless acknowledged a rough road ahead: the government is embarking on a program of public spending cuts after having pushed divisive labor market reforms through parliament last week.
And new unemployment figures have made clear that the recession and the impact of austerity measures are hitting home: Monti termed "unacceptable" that youth unemployment had now hit 36 percent.
"Reducing the weight of the public sector in the markets, including the financial markets, will give us greater possibilities for productivity and work for young people," he said when asked how much more austerity Italians can take before growth measures kick in.
Both leaders stressed the need for Italian and German companies to collaborate more, particularly in manufacturing, to boost economic growth.
Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.