Merkel Invokes Crisis ‘Marathon’ Without ECB, Euro Bonds

Friday, 02 Dec 2011 08:49 AM

 

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German Chancellor Angela Merkel likened solving Europe’s debt crisis to a marathon, shunning investor calls for quick action while pushing for stricter budget enforcement and overhauling the region’s governance.

Addressing lawmakers in Berlin today before a Dec. 9 summit of European leaders, Merkel rejected joint euro-area bonds or trying to make the European Central Bank the lender of last resort as quick fixes. The ECB’s role is different from that of the Federal Reserve or the Bank of England, she said.

“Marathon runners often say that a marathon gets especially tough and strenuous after about 35 kilometers (22 miles),” Merkel told the lower house of parliament in a speech previewing the European Union summit. “But they also say you can last the whole course if you’re aware of the magnitude of the task from the start.”

Germany and France are leading the push for closer economic ties among euro nations and locking in tougher enforcement of budget rules to counter the debt crisis now in its third year. Merkel welcomed French President Nicolas Sarkozy’s “important” speech yesterday in which he warned that the euro region’s fissures threaten to blow the 17-nation shared currency apart. She is due to hold talks with the French leader in Paris on Dec. 5 to coordinate their approach to next week’s summit.

Cameron and Sarkozy

With financial markets and world leaders including President Barack Obama pressing Europe to end the crisis, Merkel said that while she favored involving all EU countries, fiscal union could be limited to the euro area. That would avoid the task of getting all 27 EU members to agree. U.K. Prime Minister David Cameron is due in Paris about 1 p.m. today for talks with Sarkozy ahead of the summit.

Europe needs fiscal oversight that’s “binding” and includes “real automaticity” to punish states that persistently breach debt and deficit rules, Merkel said. European Union President Herman van Rompuy will make proposals on closer economic union on Dec. 9, when Germany will push for EU treaty change, she said.

Euro-area limits of keeping debt within 60 percent of gross domestic product and deficits within 3 percent of GDP must be enforced, she said. Merkel has said that countries that breach the limits could be sued in the European Court of Justice.

“The lessons are very simple: Rules must be adhered to, adherence must be monitored, non-adherence must have consequences,” she said today. Leaders have to “overcome fundamental flaws in the construction of the euro area.”

‘Exploding’ Euro Area

Merkel’s prescription echoed Sarkozy, who said late yesterday in a speech in Toulon, France, that the euro area risks “exploding” if members fail to converge on fiscal policies. Countries sharing the currency must prepare their budgets in common, narrow gaps in competitiveness and face tougher automatic penalties for rule-breaking, Sarkozy said.

ECB President Mario Draghi, who has criticized European leaders’ response to the debt crisis, signaled yesterday that the central bank could do more to help if governments push the euro area toward fiscal union.

“A new fiscal compact” is needed to start restoring credibility,” Draghi said in Brussels. “Other elements might follow, but the sequencing matters.” He didn’t specify what more the ECB could do and said its purchases of euro-area sovereign bonds to stem the crisis “can only be limited.”

Merkel said the ECB has to be free to move in any direction and that she won’t comment on what it does or doesn’t do. The ECB’s independence to take decisions “in any direction” must be guarded, Merkel told lawmakers.

No Praise, Criticism

The ECB is independent and must choose its own method of ensuring the euro’s stability “without being praised or criticized” and states must protect that independence by improving their finances, the Westdeutsche Zeitung quoted Merkel as saying in an interview released yesterday.

Sarkozy agreed at a meeting with Merkel and Italian Prime Minister Mario Monti on Nov. 24 to stop pressuring the ECB to step up its response to the debt crisis. Sarkozy retreated after Draghi criticized French calls for the ECB to use its unlimited power to backstop euro-area bond markets, something that Merkel has also repeatedly rejected.

Joint euro-area bonds are also “unthinkable” as long as governments retain national control over budgets, Merkel said today.

“You have to differentiate between credible enforcement powers and joint European control over revenue and spending,” she said. “And as long as this is so, joint liability for the debt of others is unthinkable. That also takes care of the debate over so-called euro bonds for now.”


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