Germany deflects calls for ECB to have more power
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 wouldn't elaborate on what these changes may be but said they would be ready in time for the next EU leaders summit on December 9. Treaty changes are, more often than not, a notoriously laborious endeavor.
Merkel said the treaty changes would "make clear that we must take steps toward a fiscal union to express the conviction that we know policies must be more closely coordinated if you have a common, stable currency."
"It is political confidence in Europe that has been lost -- we can only win it back politically," Merkel said.
This was the first meeting of the three leaders since Monti took over last week following mounting market concerns over Italy's huge debt, which stand at euro1.9 trillion ($2.6 trillion), or a huge 120 percent of economic output. Europe's current anti-crisis measures are too not big enough to deal with Italy's debt mountain.
Sarkozy said the three leaders had agreed to meet again "very soon" in Rome at Monti's invitation to continue their three-way dialogue.
The meeting comes amid signs that even Germany and France -- the eurozone's two biggest economies -- are not immune from the crisis that's already seen three relatively small countries bailed out.
All three leaders said they would do what it takes to stabilize the situation and save the euro.
"We want the euro, we want a strong, stable euro ... we will do everything to defend it," Merkel said.
France has been reluctant to resort to changes to EU treaties to improve the way the eurozone countries work together and set policies and prevent future crises. Germany had pushed for such changes, saying voluntary pledges by national governments are no longer enough to boost market confidence.
Merkel also maintained her opposition to the European Commission's new drive for eurobonds.
Germany has opposed the use of eurobonds and has long called on fiscally wayward member states to clean up their own houses with as little outside intervention as possible. A big worry for Germany is that its low borrowing costs would get diluted if eurobonds came into issue and it would then be forced to pay higher rates to tap bond markets.
"It would be completely the wrong signal to lose sight entirely now of these differing interest rates, because they are a pointer to where something still needs to be done and where we need to go further," she said.
Monti, meanwhile, reiterated his pledge to balance Italy's budget by 2013 though he sidestepped the question on whether achieving that aim would require more austerity measures, and if so, whether it risked triggering a recession in the eurozone's third largest economy.
Geir Moulson in Berlin and Frances D'Emilio in Rome contributed to this report.