Merkel Allies Harden Opposition to Granting ESM Bank License
German Chancellor Angela Merkel’s coalition rejected granting the permanent euro rescue fund access to European Central Bank liquidity via a banking license, as the Finance Ministry said it saw no need for any such move.
The rules of the European Stability Mechanism don’t provide for refinancing through the ECB, the ministry in Berlin said today in an e-mailed response to questions. The ministry isn’t holding talks on the topic nor are secret meetings taking place on such proposals, it said.
France and Italy are building support for a previously floated plan to allow the permanent backstop to wield unlimited firepower courtesy of the ECB, Germany’s Sueddeutsche Zeitung newspaper reported today, citing a European Union official it didn’t name. Leading ECB governing council members are among those who now back the idea, the newspaper said.
Lawmakers from all three parties in Merkel’s coalition immediately repudiated the suggestion. It is a “dangerous attempt” to bypass the ban on the central bank financing states directly, said Hans Michelbach of the Bavarian Christian Social Union. The Free Democratic Party’s Rainer Bruederle told Die Welt newspaper such a mechanism is a “wealth-destroying weapon,” while Norbert Barthle of Merkel’s Christian Democratic Union said it won’t happen.
“Those who try to circumvent their own rules through the back door lose their legitimacy in the eyes of the public,” Michelbach said in an e-mailed statement. “Financing debt by means of the printing press leads to growing inflation dangers.”
Almost three years into Europe’s financial crisis, leaders are still struggling to hit upon a solution. Spanish and Italian borrowing costs retreated from euro-era records last week as ECB President Mario Draghi said he will do everything that is needed to safeguard the euro area.
France and Italy are “determined” to do everything to protect the “integrity” of the euro zone, President Francois Hollande and Prime Minister Mario Monti said today in a joint statement released after a working lunch in Paris.
“Several countries in the euro zone must today refinance at interest rates that are too high, even as they conduct difficult but necessary economic reforms,” they said. “The member states, as well as European institutions, each according to its prerogatives, must fulfil their obligations to maintain the stability and the proper functioning of the euro zone and of the internal market.”
North vs South
Bruederle, a former German economy minister who is now parliamentary floor leader of Merkel’s junior coalition partner, pushed back against the southern European axis in his interview in Die Welt, warning that financial burdens placed on “contributors from the north” are not without limit.
“Madrid, Rome and Paris shouldn’t overplay their hand,” Bruederle said, according to Die Welt.
A banking license for the ESM would pile up budgetary risks and set incentives to simply continue policies of endless debt accumulation, said Michelbach. The ECB’s purchase of Italian bonds in the secondary market curtailed the government’s resolve to change economic policy, and a renewed round of bond buying would harden Italy’s refusal to carry out reforms, he said.
“It’s clear that the ESM shouldn’t become the ECB’s bad bank,” Barthle, parliamentary budget spokesman for Merkel’s party, told Tagesspiegel newspaper in an interview. It makes “no sense to speculate daily about ideas to solve the euro crisis,” he said. “We need calm and discretion.”
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