Merkel digs heels in over plea to open ECB coffers
German Chancellor says only tighter budget controls will save single currency
Published 18/11/2011 | 05:00
German Chancellor Angela Merkel has defied the financial world by flatly rejecting the idea of bringing in the ECB to bring the eurozone debt crisis to an end.
Her comments came as Spain became the latest economy to be effectively priced out of the markets, with Italy's problems remaining as deep-seated as ever. The situation in France is also alarming observers, with the country now forced to pay almost 2pc more to raise money than Germany.
Hungary, meanwhile, asked for fresh IMF assistance.
While global leaders in France, the UK and the US have called for a greater role for the ECB, Ms Merkel and many of her German allies are holding out against what they regard as a short cut to printing money.
"I'm convinced that none of these approaches, if applied right now, would bring about a solution of this crisis," Ms Merkel said in a speech in Berlin. "If politicians believe the ECB can solve the problem of the euro's weakness, then they're trying to convince themselves of something that won't happen,'' she added.
While President Barack Obama renewed calls for Europe to act, Ms Merkel said "political action" to tighten budget rules was the best approach to stem the turmoil.
Citigroup chief economist Willem Buiter suggested that Germany should overcome its fear of inflation. The ECB is "the only remaining show in town," said Mr Buiter, a former member of the Bank of England's monetary policy committee. Stocks worldwide fell for a fourth day, the longest stretch of losses in two months, as the crisis festered. Some traders now believe the ECB should be given an almost unlimited role to buy up bonds across the market, particularly off those states with large deficits.
The fresh concern relates to Spain, which is now dealing with borrowing costs of 6.78pc -- a euro-era high.
The Frankfurt-based bank has also resisted calls to provide more support. Mario Draghi, the Italian who took over as president this month, said such actions were outside the ECB's remit. But many in the markets believe this could change.
But German support would be needed for any such initiative. Two bouts of hyperinflation last century helped give Germans a "genetic code" that makes them resist "printing more money," German economy minister Philipp Roesler said. "You can't make the mistake of giving in to this pressure. You'll never get out of it, and that would be the end."
Spain is the eurozone's fourth largest economy and its problems were causing anxiety, and the country's prime minister Jose Luis Rodriguez Zapatero yesterday called on the European Commission and ECB to act "immediately" to stem the crisis.
Borrowing costs of countries from Portugal to Finland, the Netherlands to Austria rose relative to Germany amid mounting concern the debt crisis is spreading. Ms Merkel, in her speech, said that Europe must flesh out the details on leveraging the EFSF rescue fund; while pressing for European Union treaty changes to enforce budget control and reassure markets over the medium term.
Meanwhile, Greece remains a major problem for the Europeans and the IMF. The IMF yesterday said it wouldn't release the next tranche of funding for Greece until there is broad political support for the measures attached to the loan, a spokesman said.
"It's important that the unity government now shares its commitment to the implementation of the economic program" and the decisions agreed by European leaders last month, IMF spokesman David Hawley told reporters yesterday. "Once broad political support" for the measures "is assured, then we can proceed with completion" of the review and the release of the tranche, he said. However, last night there was some good news from Italy when Mario Monti's government won its Italian Senate confidence vote.