Germany's chancellor and central banker urged Europe to stick to stricter budget discipline and forget about one-shot solutions after financial markets judged that another EU summit had failed to resolve the eurozone's debt crisis.
Chancellor Angela Merkel and Bundesbank chief Jens Weidmann, speaking separately, rebuffed pressure for the European Central Bank to intervene decisively to stop the crisis escalating.
Merkel told parliament on Wednesday (14 December): “The German government has always made it clear that the European debt crisis is not to be solved with a single blow. There is no such single blow.”
Irish minister says bank should be backstop
Weidmann, an influential voice in the ECB, reiterated his opposition to ramping up purchases of troubled eurozone states' debt, saying he was “no fan” of the existing limited bond-buying programme and even its supporters were growing sceptical.
Meanwhile, Ireland's European Affairs Minister, Lucinda Creighton, said at a meeting in Paris that last week’s summit agreement by 26 European Union states was not going to stop the rot.
“Having the fiscal compact in place by March is desirable but I don't think it's going to save the euro,” she told reporters on a visit to Paris.
“Ideally (I would like to see) a very clear declaration from the ECB that it is prepared to do whatever is necessary to save the currency, and it is the ultimate backstop,” Creighton said. “I don't think we're there yet but I feel we will end up there.”
Ireland and France saw eye-to-eye about the need for the European central bank to act as lender of last resort, but there was no consensus on this yet, she said. Paris has toned down calls for ECB action, stressing its respect for the bank's independence partly in deference to its close alliance with Germany.
Bond sales in new year will test summit deal
Creighton warned that the crisis was likely to accelerate when countries such as Italy and Spain went to market in January and February to raise funds. “They will be challenged. We've yet to see the scale of that challenge,” she said.
Weidmann told journalists the ECB's mandate prevented it from embarking on unlimited bond purchases and experience showed this would inevitably lead to inflation anyway.
“I think the idea is astonishing that one can win confidence by breaking rules,” he said.
France said it and Germany wanted another eurozone summit in January to discuss steps to revive growth amid forecasts that deepening austerity measures are driving the European economy back into recession, with even Germany near standstill.
Another ECB policymaker, Dutch central banker Klaas Knot, put the onus back on EU governments, saying European leaders can solve the debt crisis if they increase their financial rescue fund to at least €1 trillion, either directly or via contributions to the IMF.
Meanwhile banks were also warned by the chief executive of Italian bank Unicredit yesterday not to use the extra liquidity provided by European Central Bank funding to buy government bonds.
