Draghi calls on leaders to act over debt crisis

EUROPEAN CENTRAL Bank president Mario Draghi pressed EU leaders to do more to tame the debt crisis but pushed back against the clamour for the ECB to adopt the mantle of lender of last resort for the euro zone.

Mr Draghi called on euro zone countries to quickly proceed with a stalled plan to expand the lending power of the European Financial Stability Facility fund and said there should be no further delay.

“Where is the implementation of these long-standing decisions?” he asked, in reference to a summit decision three weeks ago to increase the EFSF’s firepower to €1 trillion from €440 billion.

His remarks, to a conference in Frankfurt, came at the end of a week in which the borrowing costs of Spain hit dangerous levels and France faced the highest premium over German borrowing rates for 20 years.

Such strains, even after the appointment of technocratic governments in Italy and Greece, have led officials to examine alternative ways of intensifying the response to the debt crisis.

France revived a campaign this week to give the EFSF a banking licence and powers to borrow from the ECB. Such moves are opposed by Germany and by the ECB itself.

The sharpening divisions between France and Germany have raised questions about the durability of their alliance, which is at the core of the campaign against the debt crisis.

While the battle is increasingly cast as an existential one for the single currency, Taoiseach Enda Kenny went further yesterday by saying the EU itself was under threat.

“If the euro fails then the union will dissolve, no doubt,” he told the Frankfurter Allgemeine Zeitung daily.

Mr Draghi insisted that the ECB should not deviate from its core mandate, arguing that the bank would quickly lose credibility if it moved from its primary role of keeping prices stable.

European stock markets dropped to their lowest level for six weeks as German chancellor Angela Merkel reiterated opposition to a wider role for the ECB, which is prohibited by law from lending directly to governments. EU institutions “cannot pretend” to have powers they do not have, she said.

EU leaders are increasingly annoyed with Greek conservative leader Antonis Samaras, who has refused to sign a letter pledging to execute the country’s EU-IMF programme fully.

Although the emergency government led by technocratic prime minister Lucas Papademos has presented a draft budget, Europe is still threatening not to release a crucial €8 billion loan if all Greek parties do not provide a written promise to follow the bailout plan.

The situation is increasingly urgent as Greece will run out of cash next month if it does not receive the new loan. Dutch finance minister Jan Kees de Jager called yesterday for a speedy resolution to the affair.

“In the spirit of ‘trust and verify’ the Greek political parties have to make a clear and unequivocal choice in writing: are they with us, or not? We don’t have the luxury of patience any longer.”