By Patrick Donahue - Dec 12, 2011 6:00 AM GMT+0700
Dec. 12 (Bloomberg) -- Russell Jones, global head of fixed-income strategy at Westpac Banking Corp., talks about Europe's sovereign debt crisis. Germany’s top central banker cooled speculation that the European Central Bank will extend its role as European leaders pressed their case that a new fiscal accord will deliver the region from its two-year-old debt crisis. Jones speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Germany’s top central banker cooled speculation that the European Central Bank will extend its role as European leaders pressed their case that a new fiscal accord will deliver the region from its two-year-old debt crisis.
Bundesbank President Jens Weidmann told the Frankfurter Allgemeine Sonntagszeitung that while the new accord represents “progress,” the onus is on governments rather than the Frankfurt-based ECB to resolve the crisis with financial backing. German Finance Minister Wolfgang Schaeuble said euro- area policy makers will now focus on implementing the Dec. 9 pact to strengthen budget rules as quickly as possible.
“The mandate for redistributing taxpayer money among member states clearly does not lie in monetary policy,” Weidmann told the newspaper in an interview published yesterday. “Financing of sovereign debt through central banks is and remains forbidden by treaty,” the central banker said.
The Franco-German-led agreement, which provides tighter budget rules and an additional 200 billion euros ($267 billion) to the euro war chest, is part of an effort to reassure investors that European leaders can master the crisis. ECB President Mario Draghi lauded the accord, stoking hopes among investors that the central bank might step up bond purchases.
‘Lastingly Stable Euro’
Chancellor Angela Merkel said the accord set the region on a path to a “lastingly stable euro” after European leaders convened in Brussels, adding that “the breakthrough to a stable union has been achieved.” The single currency will now be “more robust” after the acute stage of the crisis subsides, Finland’s Prime Minister Jyrki Katainen told YLE Radio Suomi yesterday.
The accord opens the way for the ECB to intensify its role in the crisis, Irish Deputy Prime Minister Eamon Gilmore said in an interview with Dublin-based broadcaster RTE yesterday. The ECB has signaled “that it would strengthen its role and enhance its role following the conclusion of an agreement,” Gilmore said.
“The ECB will have to gear up its purchases should market tension increase, there is simply no other option available,” Thomas Costerg, an economist at Standard Chartered Bank in London, wrote in e-mailed response to a Bloomberg News query.
Investors gave a mixed reaction before the weekend. European stocks rose, while the euro pared gains on speculation that national authorities will struggle to implement the agreement. Yields on Italy’s 10-year notes rose 8 basis points to 6.53 percent, while Spain’s gained 3 basis points to 5.85 percent.
March Deadline
European leaders have given themselves until March to complete the language for the new rulebook and plan to set up the region’s permanent rescue fund, the European Stability Mechanism, a year earlier than planned in 2012. Leaders also plan to reassess plans to cap the overall lending of the ESM at 500 billion euros.
“We need to work on making this happen quickly, because we have to regain the lost trust of the financial markets and investors across the globe,” Schaeuble said in an interview on Germany’s ARD television late yesterday. “We can’t lean back.”
Retiring European Central Bank Executive Board member Juergen Stark said EU and euro-area institutions needed to take a “quantum leap” forward to overcome the crisis. In an interview with Germany’s Sueddeutsche Zeitung published yesterday Stark called for a panel of experts to review budgets in the euro area, which could form the “nucleus for a future European finance ministry.”
‘Disappointed’ Clegg
The accord forged in Brussels came at the cost of marginalizing the U.K. after Prime Minister David Cameron refused to back the effort. The rift left leaders of the single- currency union with the prospect of fashioning an accord among themselves rather than amending the EU treaties. Nine of the other 10 non-euro members signaled they’ll go along with the pact after consulting their parliaments.
U.K. Deputy Prime Minister Nick Clegg, speaking on British Broadcasting Corp.’s “Andrew Marr” program yesterday, said he was “bitterly disappointed” by the summit result, which left the U.K. “isolated and marginalized” in the EU. Still, the leader of Britain’s smaller coalition party, the pro-EU Liberal Democrats, ruled out a breakup of Britain’s ruling coalition.
Leaders for the first time extracted a contribution from euro central banks of 150 billion euros toward the International Monetary Fund’s general resources. Another 50 billion euros will come from non-euro EU states. The accord’s signatories will confirm within 10 days how they will channel funds to the IMF, which could then be used to aid troubled European states.
China
Chinese Vice Foreign Minister Fu Ying said that China will be part of international efforts to assist Europe.
“Europe needs a partner, they come to sell their bonds, that’s a partnership,” Fu, whose portfolio is European affairs, told reporters in Vienna two days ago. “They have to work out the terms, it should be a kind of relationship of cooperation.”
Draghi praised a “very good outcome” in Brussels, a day after he dampened expectations that a deal would prompt the ECB to step up its bond-buying activities. Europe’s top central banker said the European bailout fund had to provide the firewall.
Austrian Chancellor Werner Faymann cast doubt on the arrangement, telling the Salzburger Nachrichten newspaper that the accord struck in Brussels lacked “firepower.”
“The decisions don’t have enough firepower to have a sustainable effect,” Faymann told the Salzburg-based paper. While the measures on budget discipline are a “big step forward,” rules on regulating financial markets, a European rating company and “European income via a financial transaction tax” are still missing, he said.
To contact the reporter on this story: Patrick Donahue in Berlin at at pdonahue1@bloomberg.net.
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
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