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08 December 2011

WSJ: Eyes turn to German-Italian duo


As Europe's leaders prepare for a decisive summit on Friday, hopes for a breakthrough in the eurozone debt crisis may hinge on an unusual pairing: that of the German chancellor and European Central Bank President, Mario Draghi.

With pressure from financial markets rising, the German leader and Italian central banker appear to be the only Europeans with the political clout and purse to save the euro. What is less clear is how far each is willing to go and how long they will wait.

Mr Draghi and many of his colleagues on the ECB governing council are reluctant to take radical steps that could cause a political backlash against the central bank in Germany, Europe's largest economy and the ECB's biggest financial backer.

"Draghi knows that one country in Europe has a 28 per cent share in the ECB", said Michael Fuchs, a senior lawmaker in Ms Merkel's conservative Christian Democratic Union. "It would be smart" if Mr Draghi continued to heed the sensibilities of his biggest shareholder, Mr Fuchs added.

Ms Merkel and other German government officials usually refrain from commenting publicly on ECB decisions, in keeping with Germany's belief that central banks should be independent. In negotiations behind closed doors, however, the German government is showing more openness to a bigger ECB firefighting role in the euro crisis.

Even so, Ms Merkel remains sceptical of all-out ECB bond-buying, say people familiar with her thinking. German taxpayers might one day have to recapitalise the ECB if it ends up holding the eurozone periphery's bad debts, Berlin officials fear.

Full article



© Wall Street Journal


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