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01 December 2011

Bloomberg: Franco-German push for budget policing meets resistance


Germany and France are pushing for closer economic ties among euro nations and tougher enforcement of budget rules to counter the debt crisis, snubbing investor pleas to back an expanded European Central Bank role.

Merkel’s refusal to deploy the ECB is a rebuff to President Barack Obama after he exhorted Europe’s leaders to take more action to combat the crisis. The chancellor is loath to agree to follow the Federal Reserve and the Bank of England in policies she views as akin to fighting debt with more debt. Enlisting the ECB in battling the crisis would violate the central bank’s independence and set it on a course of action that might not work, destroying its credibility.

“The market is questioning Merkel’s tough approach”, Jacques Cailloux, chief European economist at Royal Bank of Scotland Group in London, said in a telephone interview. Investors want “clarity on what the framework will look like and what the financial bridge will look like” to fund euro area governments and banks that need aid while fiscal ties are negotiated, he said.

EU President, Herman Van Rompuy, has questioned imposing policy through a treaty, saying the process doesn’t move quickly enough to satisfy markets. “It can take a lot of time”, he said late yesterday in Brussels. “We are looking for something that can be handled much quicker” to restore investor confidence. Throughout almost two years of market turbulence and conflict with allies, Merkel hasn’t budged, rejecting joint eurobonds and a greater ECB role, at times clashing with Sarkozy.

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