A BACK-ROOM rift among euro zone leaders was exposed in Berlin yesterday when Germany and Italy disagreed over crisis-fighting measures.
The ECB rowed into the debate, calling on leaders to stop bickering over competing crisis solutions and make a “gradual and structured effort” to complete European monetary union.
As the Frankfurt bank prepares new crisis-fighting proposals, German chancellor Angela Merkel ruled out granting a banking licence to the euro zone bailout fund (ESM).
Standing beside her in Berlin, Italian prime minister Mario Monti promptly contradicted his host, saying that “some things not possible today . . . could be possible tomorrow”.
“A bank licence for the ESM would be an important mosaic stone that would make governing easier for us,” he said. Officials in Italy, Spain and elsewhere believe a banking licence would help drive down their borrowing costs.
“If there isn’t consensus for a certain instrument,” Mr Monti added, “alternative instruments can be found”. Dr Merkel and Mr Monti are not the only sparring German-Italian couple in the euro zone. ECB president Mario Draghi has defended his bank’s right to take “exceptional measures”, slapping down Bundesbank president Jens Weidmann’s warning on Monday that bond-buying was a fiscal “drug” that goes beyond the central bank mandate.
In yesterday’s Die Zeit, Mr Draghi wrote that the euro is not under performing as a currency but as a political process, requiring greater economic and political integration – in parallel.
He was critical of European leaders for their divisive “either-or” solutions to the crisis. Neither the status quo nor a “United States of Europe” would work, Mr Draghi wrote: The former camp “misunderstood” the euro while the latter “set the [integration] bar too high”.
“This new architecture does not require a political union first,” he wrote. “Where necessary, sovereignty in selected economic policy fields can and should be pooled and democratic legitimation deepened.”
He added: “Countries have to live within their means . . . Banks have to conform to the highest regulatory standards and focus on serving the real economy. This is not the end, but the renewal of the European social model.”
Expectation is growing that the ECB will, next week, present new bond-buying measures to cut borrowing costs for crisis-hit countries. In a hint of what may be coming, Mr Draghi said exceptional disturbances allowed the ECB to take “exceptional measures” to defend its mandate that “go beyond standard monetary policy tools”. This view has been greeted by politicians around Europe, including in Berlin. But the Bundesbank argues that a formal bond-buying policy would cross a red line towards forbidden state financing.
A majority of ECB governors are believed to support bond-buying with conditions as an appropriate contribution to stabilise the joint currency. Mr Draghi added, pointedly, that a stable currency “is what the people in Europe, and in Germany, aspire to”.
