Divisions are sharpening between Germany and France over their response to Europe’s expanding debt crisis, a clash which threatens to disrupt the alliance at the core of the political response to the debacle.
With French borrowing costs under pressure as the turmoil widens, Paris took decisive steps to renew a campaign opposed by Berlin to deepen the role of the European Central Bank in the battle against the crisis.
The escalating hostilities, emphasised in public remarks by German chancellor Angela Merkel and French finance minister Francois Baroin, came as US president Barack Obama intervened yet again to call on European leaders to confront what he described as a “problem” of political will.
“Until we put in place a concrete plan and structure that sends a clear signal to the markets that Europe is standing behind the euro and will do what it takes, we are going to continue to see the kinds of market turmoil we saw,” Mr Obama said during a visit to Australia.
The deepening dispute between Germany and France is seen in diplomatic circles to reflect the fact that the question of a wider role for the ECB, which the bank itself opposes, remains on the table in Europe’s desperate search for a solution to the crisis.
Dr Merkel, who had talks in Berlin yesterday with Mr Kenny, insisted that ECB interventions on monetary markets were no substitute for austerity measures, fiscal reform and agreement on changes to the EU treaties to give effect to binding EU oversight of member states’ budgets.
“I want to be very clear: our reading of the treaties is that the ECB does not have the ability to solve these problems,” she said.
Her remarks put her at odds with Mr Kenny and, more significantly, French president Nicolas Sarkozy, who has been been her closest ally in the fight against the crisis.
Mr Sarkozy pulled back last month from his demand for ECB involvement in moves to radically increase the lending power of Europe’s bailout fund.
With the deal done at an EU summit to expand the fund now seen to be foundering and French borrowing costs at a euro-era high, Mr Sarkozy’s administration moved yesterday to reignite the debate over the ECB’s role.
In an interview yesterday, Mr Baroin said the ECB would have to be “a significant element” of the solution to the crisis and added that he saw “more federalism” emerging in Europe.
“We are in favour of the intervention of all the European institutions, including the ECB, to achieve the best responses to the crisis,” he told Les Echos , a financial daily.
“We respect German history and states must of course do their work, but we believe that the ECB is one response and probably a significant element in the response to the crisis.”
After his talks with Dr Merkel, Mr Kenny took issue with the chancellor’s plan to tackle the crisis with changes to the European treaties and said the ECB should act as the “ultimate firewall” to calm restive markets. “We need to keep our eye on the target and get stability back into the euro zone,” said Mr Kenny, warning that Ireland remained “absolutely vulnerable” to international instability.
“In the current environment, only the ECB has the capacity to provide the necessary unlimited firewall against financial market panic.”
However, Mr Kenny expressed his thanks for German financial support through the EU-IMF programme and its recognition of the progress Ireland was making. Dr Merkel said Germany was “very impressed” with Ireland’s reform efforts.
In Rome yesterday, former EU commissioner Mario Monti was sworn in as Italy’s new prime minister.