German Chancellor Angela Merkel and Italian Prime Minister Mario Monti clashed over Europe’s debt-crisis fix, highlighting the hurdles faced by the region’s central banker as he seeks to cobble together an emergency plan.
Monti and Merkel publicly disagreed in Berlin today on whether the euro area’s bailout fund should get a bank license to boost its bond-buying capacity. The two leaders, who agreed on general principles of collaboration and budget discipline, must find common ground on details to enable European Central Bank President Mario Draghi follow through on his goal of stabilizing markets throughout the 17-nation euro area.
Merkel is under pressure in Germany, the biggest economy in the single currency, to ensure Europe’s leaders don’t overstep their mandates in attempts to bail out the region’s weaker countries. Draghi, in an op-ed in today’s Die Zeit newspaper defending the ECB’s right to take “exceptional measures,” indicated he shares Monti’s vision that policies are flexible.
“Some things that aren’t possible today under current conditions could become possible tomorrow,” Monti said to reporters after Merkel, at his side, ruled out a banking license for the European Stability Mechanism, the region’s permanent bailout fund. “If there isn’t consensus for a certain instrument, alternative instruments can be found.”
Draghi could unveil the details of his plan after ECB leaders meet on Sept. 6, a gathering that may set the tone for what Merkel called a “very ambitious agenda” over the coming weeks. Leaders are awaiting a report from the so-called troika that’s overseeing a second Greek bailout and a German court will rule on the constitutionality of the ESM on Sept. 12. Merkel is scheduled to travel to Madrid next week, where Spanish Prime Minister Mariano Rajoy is mulling a request for a second European bailout a month after seeking 100 billion euros ($125 billion) in loans for Spain’s banks.
“We have had achievements, but we’re not finished,” Merkel said. “Problems in different countries have to be solved quickly at the same time.”
Merkel and Monti’s differences follow along the lines of the divide between Draghi’s ECB and Germany’s central bank. Bundesbank President Jens Weidmann has criticized Draghi’s plan, outlined on Aug. 2, to resume government bond purchases to help countries such as Italy and Spain. Draghi, the ECB’s first Italian president, said his methods are directed at achieving the euro’s ultimate goals of stability, prosperity and peace.
“We know this is what the people in Europe, and in Germany, aspire to,” Draghi said in his op-ed, which was translated into English and posted on the ECB’s website.
The meeting between Merkel and Monti came in a moment of relative calm, as speculation that Draghi will intervene in bond markets pushed Italy’s borrowing costs down from highs in July.
Italy’s credit is as good as it has been in three months, as shown by the decline in 10-year bond yields. Short-term rates have fallen too. Monti’s Treasury sold six-month bills today at the lowest rate since March.