France and Italy step up pressure on ECB
FRANCE AND Italy have ratcheted up pressure on the European Central Bank to act to bring down Spain’s borrowing costs amid speculation that the bank is poised to resume buying bonds of troubled states.
However, Spanish and Italian government bonds fell and safe-haven German bunds rallied as markets became less confident that the ECB will take bold action in the face of German opposition.
French president François Hollande and Italian prime minister Mario Monti welcomed a recent pledge by ECB president Mario Draghi to do whatever it takes to preserve the euro. They suggested financial pressure must be eased on countries that were carrying out difficult reforms without reward from the markets.
The two leaders said they were determined to protect the euro zone and called for rapid implementation of decisions taken by EU leaders in June. “We will do everything so . . . the euro zone is defended, preserved and consolidated,” Mr Hollande said after a meeting with Mr Monti in Paris.
Mr Draghi’s declaration that the ECB would do “whatever it takes” to preserve the euro, followed by a prediction by euro group president Jean-Claude Juncker that measures would be agreed “in the coming days”, has fed speculation that ECB governors meeting tomorrow will announce a bond market buy-up to ease pressure on Spain and Italy.
Mr Juncker suggested the plan would involve the temporary bailout fund, the European Financial Stability Facility.
“France and Italy welcome recent statements by the president of the ECB,” Mr Hollande and Mr Monti said in a joint statement. “A number of euro zone countries must today refinance themselves at excessively high interest rates, even though they are carrying out necessary but difficult reforms.”
The French and Italian leaders wanted to see rapid implementation of an EU summit deal in June, which paved the way for the euro zone’s future European Stability Mechanism bailout fund to recapitalise ailing banks directly, without adding to the national debt of struggling countries.
Berlin agreed in principle at the June summit that the euro zone rescue funds could buy bonds of countries that risk losing market access, but opinions differ on whether such support should entail stricter economic conditions or international monitoring.
“We must be able to use the measures and tools agreed upon as quickly as possible,” Mr Holland and Mr Monti said.
Any large-scale intervention by the ECB is expected to meet opposition from some members of the bank’s governing council, but Mr Monti, who has campaigned for concerted action by the rescue funds and the ECB, yesterday struck a cautiously optimistic note.
“There is a bit of light at the end of the tunnel and at the same time we and the rest of Europe are getting closer to the end,” he said. “We are now seeing concrete results both from European institutions and from the governments of individual countries, including Germany.”