Business World

Friday 24 November 2017

France, Germany clash on ECB role in solving mess

EU relations

Stephen Brown and Noah Barkin in Berlin

Germany and France clashed yesterday over whether the ECB should take bolder steps to stem the eurozone debt crisis, with Chancellor Angela Merkel issuing one of her starkest warnings yet against fiddling with the central bank's strict inflation-fighting mandate.

In a forceful speech to the Bundestag lower house of parliament, Ms Merkel also hit back at proposals from the European Commission on joint eurozone bond issuance, calling them "extraordinarily inappropriate".

Yesterday Germany was unable to borrow a full €6bn on the debt markets -- a sign that the two-year-old crisis was beginning to threaten Europe's paymaster. The Bundesbank ended up buying almost half of the 10-year bonds on offer.

But the public jousting underscores just how divided European leaders are on how to resolve turmoil which has accelerated to engulf big countries like Italy and Spain.

"The European currency union is based on a central bank that has sole responsibility for monetary policy. This is its mandate. It is pursuing this. And we all need to be very careful about criticising the European Central Bank," Ms Merkel said.

"I am firmly convinced that the mandate of the European Central Bank cannot, absolutely cannot, be changed."

Shortly before she began speaking, French Finance Minister Francois Baroin offered a polar opposite view on the ECB's role, telling a conference in Paris that it was the central bank's responsibility to sustain activity in the currency bloc.

"The best response to avoid contagion in countries like Spain and Italy is, from the French viewpoint, an intervention (or) the possibility of intervention or announcement of intervention by a lender of last resort, which would be the European Central Bank," Mr Baroin said.

Mr Baroin pointed to market intervention by the US Federal Reserve, Swiss National Bank and Bank of England as a model for the ECB. But Ms Merkel said it was impossible to compare the role of the ECB, which sets monetary policy for 17 countries, with those of national central banks.

Some leading European politicians, including Luxembourg Prime Minister Jean-Claude Juncker, support the bonds idea. But Berlin has rejected them outright as a near-term solution to the crisis, saying they would raise Germany's borrowing costs and reduce incentives for other eurozone countries to bring their fiscal houses in order.

Violations

In her speech, Ms Merkel pointed to repeated violations of the EU's Stability and Growth Pact in the currency area's first decade, saying they had damaged market faith in the bloc's ability and willingness to crack down on fiscal rule-breakers.

"And this is why I find it extraordinarily inappropriate that the European Commission is suggesting various options for euro bonds today -- as if they were saying we can overcome the shortcomings of the currency union's structure by collectivising debt. This will not work," Ms Merkel said.

The German leader also sent a clear warning to Antonis Samaras, the leader of conservative New Democracy in Greece, who has resisted pressure to join other parties and make a written commitment to painful austerity measures.

Ms Merkel said Greece would not receive an €8bn aid tranche it needed to avert a default next month unless Mr Samaras signed the pledge.

Irish Independent

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