France-Germany Split Widens Over ECB’s Role

By: EW News Desk Team   Date: 17 November 2011

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EW News Desk Team

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EconomyWatch, News Desk Team

 

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17 November 2011

Europe’s two central powers, France and Germany, have clashed once again over the European Central Bank’s (ECB) role in dealing the eurozone crisis, leading to fears that an ideological divide between the two nations may lead to further delays in the eurozone’s rescue process.

Related: Solutions to the Eurozone’s Problems Miss the Mark: George Friedman

Related: SOS – The Eurozone Can No Longer Save Themselves: Raghuram Rajan

On Wednesday, the French government pleaded for stronger ECB intervention, as bond yields across Europe continued to rise, with France’s own ‘AAA’ credit rating coming under increased scrutiny.

"The ECB's role is to ensure the stability of the euro, but also the financial stability of Europe. We trust that the ECB will take the necessary measures to ensure financial stability in Europe," said French government spokeswoman Valerie Pecresse after a cabinet meeting in Paris, as quoted by Reuters.

But the German government have been blocking any attempts made to allow the ECB to lend money to struggling states and the European Financial Stability Facility (EFSF), claimed French Minister Francois Baroin.

“We are in favour of the intervention of all the European institutions, including the ECB, to achieve the best responses to the crisis,” he said. “Germany, for historical reasons, has closed the door to direct involvement of the ECB.”

In an interview with financial newspaper Les Echos, Baroin argued that the US Federal Reserve and the central banks of England and Japan had intervened to shore up their economies without their independence being questioned.

“But Germany has a history, a memory of inflation, of indebtedness… 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,” he said.

The German government though insisted that the ECB did not and should not have a mandate to do more than it was currently doing.

"The way we see the treaties, the ECB doesn't have the possibility of solving these problems," said German Chancellor Angela Merkel after talks with visiting Irish Prime Minister Enda Kenny.

The only way forward for the eurozone was to restore markets' confidence through the implementation of agreed-upon economic reforms while building a closer European political union by changing the EU treaty, she added.

German Finance Minister Wolfgang Schäuble also claimed that using the ECB was the "wrong solution" and that Europe would "pay a high price in the long run" if it gave in to pressure from some governments and markets on the central bank's role.

The debate between the two powers have led to accusations by US President Barack Obama that Europe was facing “a problem of political will” to solve the crisis.

Related: Europe’s Woes Stem From A Crisis Of Nationalism: George Friedman

Related: The Endgame For The Eurozone Has Begun: Nouriel Roubini

"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," he said.


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