Germany's Merkel takes hard line on fixes for eurozone debt crisis
German Chancellor Merkel is pushing guarantees of greater fiscal discipline in exchange for a more assertive European Central Bank role in addressing the eurozone debt crisis.
The European Central Bank is now at the center of a fierce debate about solutions to Europe’s sovereign debt crisis. Some eurozone states, including France, are calling for it to be turned into a strategic tool to save member states from defaulting – a position supported by the United States – while others, most notably Germany, are stubbornly resisting such demands.Skip to next paragraph
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Speaking in parliament Friday morning, Germany's Chancellor Angela Merkel made it clear she does not intend to move on the issue. She went on to stress that the ECB had a different role to that of other central banks – like the Federal Reserve Bank or the Bank of England – and that its main purpose was to secure the stability of the currency.
“Our target is a fiscal union in the eurozone,” she argued, “but as long as member states have full responsibility for their national budgets, there won’t be any common liability.”
Ahead of next week's EU summit in Brussels, Chancellor Merkel is trying to convince French President Nicolas Sarkozy, her most important partner, to support her ideas of automatic sanctions against violations of stability criteria specified in the EU Treaties and ultimate budgetary control of member states by the European Commission in Brussels. Those ideas are supported by Mario Draghi, the new ECB president.
“Financial aid for eurozone members can only be granted if these states commit to structural reforms,” says Thomas Straubhaar, director of the Hamburg Institute of International Economics.
Since May 2010, the ECB has been buying the bonds of eurozone members that have been shunned by investors because of high debt and poor economic outlook. Roughly €200 billion had been spent in what some argue is a violation of the European Treaties, which stipulate that debts of individual member states should not be the responsibility of the currency union.
“That’s not what the ECB is there for,” says Jörg Krämer, chief economist at Commerzbank. “The bank should preserve people’s trust in the currency by guaranteeing price stability.”
Like Merkel, the ECB itself has dampened hopes for increased engagement. The bank’s policy of buying up bonds of struggling eurozone members was “temporary and limited,” Mr. Draghi told the European parliament in Brussels.
No other candidates for a solution
But many say that the eurozone is well past the point at which it can choose the means to solve the crisis.
“In the short run, there is no one else but the ECB who can help to refinance eurozone members struggling to get fresh money from private creditors,” says Mr. Straubhaar. “Of course, this puts the ECB in a position it should never have found itself in.”
To put volatile financial markets at ease, the ECB would have to make a commitment to buy unlimited amounts of government bonds for the foreseeable future.