Saturday 10 December 2016

Merkel sees role for ECB in buying troubled bonds

But German leader says it is only a temporary fix as she pushes for major changes to EU treaty

Stephen Brown and Catherine Bremer

Published 03/12/2011 | 05:00

German Chancellor Angela Merkel gestures during her speech at the German Federal Parliament, Bundestag, in Berlin, yesterday. Photo: MICHAEL SOHN / AP
German Chancellor Angela Merkel gestures during her speech at the German Federal Parliament, Bundestag, in Berlin, yesterday. Photo: MICHAEL SOHN / AP

German Chancellor Angela Merkel moved a step closer yesterday to accepting that the ECB will have to step up its buying of troubled eurozone countries' bonds as a bridging measure until proposed budget controls take hold. But she did not see it as a durable solution

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Outlining a long-term approach to tighter fiscal integration in the single currency area, with tougher budget discipline, Ms Merkel dismissed quick fixes, such as massive Fed-style money printing, by the European Central Bank or issuing joint eurozone bonds.

Remedy

She called for rapid EU treaty changes to remedy the root causes of the eurozone's debt crisis but warned that Europeans faced a long, hard "marathon" to restore lost credibility.

"Resolving the sovereign debt crisis is a process, and this process will take years," Ms Merkel told parliament, vowing to defend the euro, which she said was stronger than Germany's former deutschemark.

"The European Central Bank has a different task from that of the Fed or the Bank of England," the German leader said.

However, sources close to Ms Merkel said she was willing to see the ECB step up its bond- buying programme.

Speaking a week before a European Union summit seen as make-or-break for the 17-nation single currency area, Merkel ruled out issuing common eurozone bonds, saying that would breach the German constitution.

Instead, she called for a mixture of greater European powers to control national budgets, to be enshrined in treaty changes, and smart use of the eurozone rescue fund to stabilise markets.

Merkel's speech set the agenda for seven days of intense diplomacy to try to frame a new political deal to restore shattered market confidence.

World stocks and European bonds continued to recover on hopes that eurozone leaders may be moving closer to a comprehensive solution to the debt crisis.

On the markets, German 10-year bonds outperformed safe-haven US Treasuries. Spanish 10-year bond yields have plunged about a percentage point over the week and now stand at 5.57pc. Italian 10-year yields were up 3 basis points at 6.64pc after earlier trading lower at 6.57pc.

Global equity markets also rallied, heading for their best week in three years. Stocks rose after the unexpected decline in the US jobless rate to its lowest level since March 2009.

It was the biggest monthly decline since January. The retail sector accounted for more than a third of all new private sector jobs in November as shops geared up for a busy holiday season. So far data ranging from manufacturing to retail sales suggest the US economy's growth pace could top 3pc in the fourth quarter.

Euro timeline, Page 37

Irish Independent

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