By Brian Parkin and Mark Deen - Nov 28, 2011 9:11 AM GMT+0700
German Finance Minister Wolfgang Schaeuble said that European governments are struggling to enact a pledge to beef up the euro rescue fund, as he called for fast- track treaty changes to tighten budget discipline as the key to calming markets.
Schaeuble, in an interview with ARD television in Berlin, said that the European Financial Stability Facility recently paid a higher rate of interest on debt than France or the other AAA rated countries that guarantee the EFSF, underscoring the “crisis of confidence” in the euro area. The “decisive” answer remains budget discipline enforced by means of European Union treaty change, he said.
Treaty change is necessary to give veto power over member- state budgets to the EU Commission, Schaeuble said in the interview broadcast late yesterday. “We can do that quickly and this will send an important signal to markets that the euro is and remains a stable currency,” he said.
Euro-area finance ministers will meet in Brussels tomorrow as governments bid to regain the confidence of financial markets after a week in which the euro-area sovereign debt crisis worsened. Under guidelines to be considered by finance chiefs, the EFSF may insure bonds of troubled countries with guarantees of between 20 percent and 30 percent of each issue to be determined in light of market circumstances, a draft shows.
Euro Bonds
Schaeuble again ruled out joint euro-area bonds or deploying the European Central Bank to fight the crisis, saying such a debate is conducted in “those countries that have to sort out their budget problems and chose to misunderstand that they have to make more efforts.”
“We must together set up institutions that secure trust in the euro,” he said. “Everything that detracts from that is damaging.”
Schaeuble’s comments clash with French Budget Minister Valerie Pecresse, who suggested that more help from the ECB may be forthcoming if euro countries implement tougher budget rules.
“Countries need to make a complete commitment to cutting their debt levels and increasing budgetary convergence,” Pecresse said yesterday on France’s Canal Plus television. “Then European institutions will be able to play their full role. That goes for the commission, the council and also for the ECB.”
Overhauling Treaties
Pecresse, who is also a spokeswoman for the French government, said that fellow administrations are working on “re-making the European treaties,” with the aim of creating “new governance for the euro zone, a real regulator and real sanctions to bolster confidence” in the euro.
The euro rose today amid optimism that Europeans will step up efforts to end the crisis, advancing 0.5 percent to $1.3309 as of 11:04 a.m. in Tokyo. A report by La Stampa newspaper that the International Monetary Fund is preparing aid of as much as 600 billion euros for Italy in case that nation’s funding woes worsen appeared “wide of the mark,” said Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co.
“The IMF simply does not have the resources,” New York- based Chandler wrote in a note to clients. The Washington-based lender had committed $282 billion in loans as of mid-August, compared with member quotas of $383 billion and additional pledged or committed resources of about $600 billion, IMF data show.
Fast Track
Asked about newspaper reports that German Chancellor Angela Merkel and French President Nicolas Sarkozy are planning a fast- track stability pact to stem the crisis, Schaeuble said the government was “making efforts to convince the European Parliament that we can make such a treaty change without summoning to a convention” of representatives from each EU country to deliberate the matter.
“We need only change so-called protocol 14 of the Lisbon Treaty -- that is for the members of the single currency to create their own stability union,” Schaeuble said. “We must concentrate on that.”
Germany and France would start a coalition of euro-zone members that would commit to greater fiscal discipline without waiting to change EU treaties, German newspaper Welt am Sonntag reported at the weekend. The project, similar in form to the Schengen agreement that regulates passport-free cross-border travel, may be announced this week, the newspaper said, citing unidentified people close to the government.
ECB Role
The deal, which could be implemented by the start of 2012, would also expect the ECB to take a stronger role as the euro- area’s crisis-fighter, Welt am Sonntag said.
Merkel and Sarkozy agreed on Nov. 24 to stop discussing the ECB’s role in tackling the two-year-old debt crisis. Sarkozy, Merkel and Italian Prime Minister Mario Monti met in Strasbourg that day and agreed they would amend treaties to impose greater fiscal discipline on countries sharing the euro.
EU President Herman van Rompuy has been tasked with presenting EU leaders with proposals for treaty changes at their next summit in Brussels on Dec. 9, a spokeswoman for Merkel’s government said yesterday.
“We’re confident that the ECB will find the right way to protect stability of the euro zone within the framework of treaties that give it independence,” Pecresse said. “Obviously it’s not tolerable to have such divergence in interest rates within the same zone for a long period.”
Bond markets in the euro area “are not functioning normally,” Bank of France Governor Christian Noyer said at a forum in Tokyo today. He told reporters afterwards that markets have forgotten Italy’s strengths, including a strong industrial base. Noyer declined to comment on possible IMF talks with Italy.
To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net; Mark Deen in Paris at markdeen@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
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