The role of the European Central Bank (ECB) in stemming Europe’s crippling debt crisis was likely to figure prominently in discussions later yesterday between the leaders of Germany, France and Italy.
It was the first time new Italian Prime Minister Mario Monti was meeting German Chancellor Angela Merkel and French President Nicolas Sarkozy since he took charge last week in the wake of growing market concerns over the size of his country’s debts.
The meeting in Strasbourg, France, came amid signs that even Germany and France — the eurozone’s two biggest economies — were not immune to the debt crisis that had already seen three relatively small countries bailed out.
A failed German bond auction on Wednesday and another warning that France might see its cherished triple A credit rating downgraded, formed the uncomfortable backdrop to the discussions between the three leaders.
Though German and French borrowing rates are well below the 7 percent level that eventually forced Greece, Ireland and Portugal into seeking financial bailouts, they have been rising markedly in recent days. Germany’s 10-year yield has ratcheted up about 0.25 percentage points over the past 24 hours since the auction to stand at 2.12 percent, while France’s has been rising steadily in recent weeks to 3.6 percent yesterday.
Italy’s, however, has hovered around the 7 percent level for a couple of weeks now, and that’s a real cause for concern for the eurozone as the current bailout facilities are not big enough to bail out the eurozone’s third-largest economy. Italy’s debts stand at about 1.9 trillion euros (US$2.5 billion), or about 120 percent of its national income.
The meeting was aimed at “showing support for Mario Monti and his policy of reforms,” French government spokeswoman Valerie Pecresse said on Wednesday.
However, a big element of the discussions was expected to center on the ECB’s role, which many think is the only institution capable of calming frayed market nerves. Potentially, the ECB has unlimited financial firepower through its ability to print money.
While Germany finds the idea of monetizing debts unappealing, Sarkozy’s government has been pushing for the ECB to play a more active role.
France has repeatedly been frustrated in its push for the ECB to play a greater role in resolving the crisis by Merkel’s fierce opposition.
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