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FACTDROP: Euro leaders push for fiscal crackdown


Euro leaders push for fiscal crackdown

Πηγή: FT
By Hugh Carnegy
Nov 24 2011

The leaders of Germany, France and Italy, the eurozone’s three biggest powers, made tougher fiscal governance a top priority in their battle to stem the sovereign debt crisis but offered no immediate concessions to calls for intervention by the European Central Bank.

Their emphasis on structural change to stabilise economic performance left markets unimpressed. The euro fell from $1.338 against the dollar at the start of the leaders’ press conference to a low of $1.332, while stock markets across Europe gave up earlier gains.

German chancellor Angela Merkel and Mario Monti, the new Italian prime minister welcomed eagerly into the fold, in contrast to the near shunning of his predecessor Silvio Berlusconi, spoke of creating a “fiscal union” to drive economic integration and enforce budgetary discipline. Ms Merkel made clear that she wanted ambitious steps enshrined in treaty before contemplating the issuance of commonly backed eurobonds, any early discussion of which she has dismissed as “inappropriate” in a crisis.

“When we take a first step towards fiscal union, for example by reinforcing the Stability and Growth Pact via automatic sanctions, it will be a step forwards but it won’t be grounds for me to change the opinion I expressed yesterday,” she said.

President Nicolas Sarkozy of France said he and Ms Merkel would shortly propose changes to European Union treaties to improve economic governance and deepen integration among the 17 eurozone members – although he did not use the phrase fiscal union. The treaty changes will be discussed at an EU summit on December 9.

The three leaders steered around calls, strongly resisted by Germany, for the European Central Bank to intervene decisively on international bond markets to relieve the pressure building on countries such as Italy and France and even beginning to touch Germany, which had difficulty completing a bond auction on Wednesday.

In a further sign of Germany losing some of its safe haven lustre, the UK’s cost of borrowing benchmark 10-year debt fell below that of Germany on Thursday for the first time since March 2009, when the Bank of England launched quantitative easing to stimulate the UK economy. Gilt yields for 10-year debt dropped to 2.14 per cent at one point, but then rose back above Bund yields to finish the day at 2.23 per cent.

Mr Sarkozy – whose government is among the strongest advocates of ECB intervention – said the three leaders “have indicated that we will respect the independence of this essential institution and we agreed that we should refrain making any demand, positive or negative, on it”.

French officials said the statement showed that Berlin as well as Paris had agreed not to put direct pressure on the ECB. Mr Sarkozy believes that if the ECB decides to extend its bond buying programmes to ensure the proper transmission of monetary policy, it should not be constrained by German criticism, the officials added.

Alain Juppé, the French foreign minister, said before the Strasbourg meeting that treaty change would take time, but ECB intervention was a matter of urgency.

The French president did not specify what treaty changes would be proposed but Germany has been pushing hard for mandatory penalties for governments that break rules on debt, deficits and other fiscal measures – rules Berlin wants to see enforceable in court.

Mr Monti pledged to press on with the package of budget measures and economic reforms agreed with his eurozone partners as essential to stabilising Italy’s huge debt burden. But he signalled adjustment might have to be made in the face of slumping growth.

“There does exist a more general question which applies to the global economy and certainly for the European economy, and that is: what happens if you enter a phase of recession that is greater than expected?”

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