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, such as Italy.
Instead of using the bank’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 in Strasbourg, France, after meeting with French President Nicolas Sarkozy and Italy’s new premier, Mario Monti.
Many think the bank is the only institution capable of calming frayed market nerves, and Merkel’s continued dismissal of a greater ECB role knocked market sentiment. 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 bank is reluctant to take on a bigger firefighting role. Its president, Mario Draghi, said earlier this month that it was “pointless” for governments to depend on ECB bond buys to keep their borrowing costs down for any length of time.
For now, the French, German and Italian leaders agreed that current rules were not stringent enough and need beefing up to prevent a repeat of the debt crisis that has rocked the eurozone for nearly two years.
Sarkozy said “propositions for the modification of treaties” would be presented in the coming days and be ready in time for the next EU leaders summit Dec. 9.