Strasbourg, France Germany deflected calls for the European Central Bank to play a bigger role in solving Europe’s debt crisis but won the backing of France and Italy to unite the troubled 17-nation eurozone more closely.
Europe’s biggest economy and the main financier of the eurozone’s three bailouts has argued against allowing the ECB to use its firepower to ease a debt crisis that’s shown alarming signs recently of spreading to big economies, like Italy.
Instead of using the ECB’s cash-printing power, the eurozone’s richest countries decided to use political tools to dig their way out of the crisis: Germany and France agreed Thursday to push for changes to EU treaties to bring the eurozone’s economic policies more in line with each other.
“In the treaty changes, we are dealing with the question of a fiscal union, a deeper political cooperation ... there will be proposals on this, but they have nothing to do with the ECB,” German Chancellor Angela Merkel said Thursday in Strasbourg, France, after meeting with French President Nicolas Sarkozy and Italy’s new premier Mario Monti.
Many think the ECB is the only institution capable of calming frayed market nerves and Merkel’s continued dismissal of a greater ECB role knocked market sentiment and stocks all round Europe fell again after a morning rebound.
Potentially, the ECB has unlimited financial firepower through its ability to print money. However, Germany finds the idea of monetizing debts unappealing, warning that it lets the more profligate countries off the hook for their bad practices. In addition, it conjures up bad memories of hyperinflation in Germany in the 1920s.
The ECB itself is reluctant to take on a bigger firefighting role. Its president, Mario Draghi, said earlier this month it was “pointless” for governments to depend on ECB bond buys to keep their borrowing costs down for any length of time.
ECB executive council member Jose Manuel Gonzalez-Paramo said Thursday that “euro area governments cannot expect the ECB to finance public deficits.”
The ECB is “committed to its mandate to preserve price stability over the medium term — it is not the fiscal lender of last resort to sovereigns,” Gonzalez-Paramo said in a speech in Oxford, England, according to prepared remarks released by the bank.
For now, the French, German and Italian leaders agreed on with that current rules were not stringent enough and needed beefing up to prevent a repeat of the debt crisis that’s rocked the eurozone for nearly two years.
Sarkozy said “propositions for the modification of treaties” would be presented in the coming days.
He said they would be ready in time for the next EU leaders summit on Dec. 9. Treaty changes are, more often than not, a notoriously laborious endeavor.