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Berlin faces isolation on ECB euro rescue role

The Local · 27 Nov 2011, 15:21

Published: 27 Nov 2011 15:21 GMT+01:00

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With bond market vultures circling even gold-plated economies, and Italy's La Stampa daily citing IMF officials on a rescue plan worth up to €600 billion ($794 billion), another of Germany's closest Triple A-rated allies jumped ship on the ECB's role to leave Berlin isolated.

Amid predictions that the currency faces its death throes within weeks failing radical intervention, Austria joined Finland in backing ECB action to stem financial market contagion threatening Italy, Spain and even France.

The pressure has intensified since Germany itself struggled to raise public finance on commercial money markets, in a potential tipping point for the balance of power within the eurozone on the painful debate about integrating public finance across borders.

"The European Central Bank could perform a more powerful role, as in the United States," Austrian Prime Minister Werner Faymann said, also giving his support to the creation of commonly-issued eurobonds.

"It could itself buy states' bonds," he said on the sidelines of a congress of European Socialist parties in Brussels.

That meant a large-scale ramping up of carefully targeted action on the sell-on, secondary bond market, trying to prevent interest rates for Italy or Spain from skyrocketing to the levels that forced bailouts on Greece, Ireland and Portugal.

The scope for direct ECB action at primary level, as long sought by US, British and other G7 partners among the world's most powerful economies in an accelerating crisis, will be the unspoken nub of euro finance ministers' talks on Tuesday night in Brussels.

Finland's finance minister Jutta Urpilainen said Friday: "I think we have seen that if there is nothing else left then we can think about strengthening the role of the ECB."

In Strasbourg last week for a mini-summit with France and Italy, German Chancellor Angela Merkel said politicians should not intervene in ECB decision-making.

"The French president has just underlined that the European Central Bank is independent," she said, but a smiling Sarkozy interjected: "All three of us said that with respect for the independence of this institution, one should refrain from positive or negative demands of the ECB."

The Financial Times Deutschland interpreted that exchange as proof that France, the most vociferous eurozone backer of a turbo-charged ECB role at the heart of the continent's politics, was winning the day.

"By committing to silence, Merkel and Sarkozy are freeing the ECB to make a more forceful intervention in the crisis," it said.

A French government source said pressure has been piled on Merkel for months, citing the meeting alongside new Italian premier Mario Monti and an invitation for US President Barack Obama to join a French-German huddle in Cannes during a G20 summit last month.

"The idea was to point out to Merkel that, even Monti, who is willing to go much further than Berlusconi was in reforming Italy, won't make it without ECB intervention - the way all other central banks act," said the source.

The IMF loans, at rates of 4.0 percent or 5.0 percent, would give Monti a window of 12 to 18 months to implement urgent budget cuts and growth-boosting reforms "by removing the necessity of having to refinance the debt," La Stampa quoted an IMF official as saying.

Story continues below…

In Paris, the view is clear: unless Merkel turns completely, not even Germany will be able to stand in the way of market pressures.

It is a position adopted by many economists, the outspoken Jacques Attali going as far in one interview as to say the real question, rather than a threat to France's Triple A rating, was "will the euro still exist at Christmas?"

Britain's banks have started drawing up contingency plans for the possible dismantling of the eurozone, a senior official at its Financial Services Authority said last week.


The Local (news@thelocal.de)

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Your comments about this article

17:23 November 27, 2011 by storymann
The ECB has very limited power compared to the US Federal banking system.The need to have all member states vote on issues is a huge problem in comparison.

In order to enhance the ECB authority there would have to be a new treaty ratified by member states.

I would Agree with Mrs Merkel that this would in the end create a debtor zone to allow the ECB to sell Euro Bonds only to subsidize the interest rates to risky member states, encouraging them not to pass austerity measures but to borrow other peoples money at attractive rates thereby increasing their debt. The hope is that this will buy these nations time to work out austerity reforms and put them in place , but I think this is pie in the sky.
20:33 November 27, 2011 by derExDeutsche
If the Greens get their way, and Merkel agrees to Euro bonds, even more debt is on the horizon.

And with the success of the German Bonds released at the weekend, it could only be an overwhelming success.
23:42 November 27, 2011 by Logic Guy
Well, before you decide to loan a huge amount of money to someone, obviously you must seriously consider the possiblity of a failed re-payment.

Sure, austerity measures will in theory improve things, but in reality will they lead troubled nations out of the woods?

Isn't it better to shrink the EU, than risk a total loss of Europe?
06:35 November 28, 2011 by derExDeutsche
@LogicGuy 'Isn't it better to shrink the EU, than risk a total loss of Europe? '

¦quot;No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we¦#39;ll ever see on this earth¦quot; Ronald Reagan
00:56 November 29, 2011 by Billionairechronicles
George Soros continues to call for ECB fix, but does his solution cause more problems than it solves?

10:20 November 30, 2011 by luckylongshot
Good on Germany. Trying to fix the problem of too much debt with even more debt is completely stupid. At least Germany has not succumbed to the idiocy the rest of Europe is advocating.

What is happening now can only be solved with systemic change. The fractional reserve banking system needs to go and be replaced with something that does not continue to transfer the public wealth into the hands of a small private bank elite.
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