France and Germany agree to stop arguing on ECB role
France and Germany agreed yesterday to stop arguing in public over whether the ECB should do more to rescue the eurozone from a deepening sovereign debt crisis.
French President Nicolas Sarkozy and German Chancellor Angela Merkel said after talks with Italian Prime Minister Mario Monti that they trusted the independent central bank and would not touch its inflation-fighting mandate when they propose changes in the EU's treaty to achieve closer fiscal union.
They also demonstrated their backing for Mr Monti, an unelected technocrat, to surmount Italy's daunting economic challenges, in contrast to the barely concealed disdain they showed for his predecessor, media billionaire Silvio Berlusconi.
"We all stated our confidence in the ECB and its leaders and stated that in respect of the independence of this essential institution we must refrain from making positive or negative demands of it," Mr Sarkozy told a joint news conference in the eastern French city of Strasbourg.
French ministers have called for the central bank to intervene massively to counter a market stampede out of eurozone government bonds, while Ms Merkel and her ministers have said the EU treaty bars it from acting as a lender of last resort.
In signs of public resistance to austerity in two southern states under EU/IMF bailout programmes, riot police clashed with workers at Greece's biggest power producer protesting against a new property tax, and Portuguese workers staged a 24-hour general strike.
German bonds fell to their lowest level in nearly a month after Wednesday's auction, in which the German debt agency found no buyers for half of a €6bn, 10-year bond offering at a record low 2pc interest rate.
The shortage of bids drove Germany's cost of borrowing over 10 years to 2.2pc, above the 1.88pc markets charge the US and the 2.18pc that heavily indebted Britain has to pay.
Bond investors are effectively on strike in the eurozone, interbank lending to euro area banks is freezing up, ever more banks are dependent on the ECB for funding, and depositors are withdrawing increasing amounts from southern European banks.
Mr Monti repeated Italy's goal of achieving a balanced budget by 2013 but said there was room for a broader discussion about how fiscal targets could be adjusted in a worse-than-expected recession.
Italian bond yields jumped this month to levels above 7pc widely seen as unbearable in the long term.
Keeping Italy solvent and able to borrow on capital markets is vital to the sustainability of the eurozone.