Germany rejects call for ECB to up role

GERMAN Chancellor Angela Merkel rejected French calls to deploy the European Central Bank as a crisis backstop, defying global leaders and investors calling for more urgent action to halt the turmoil.

As the crisis sent borrowing costs in core economies outside Germany to euro-era records, Merkel listed using the ECB as lender of last resort alongside joint euro-area bonds and a “snappy debt cut” as proposals that won’t work.

“I’m convinced that none of these approaches, if applied right now, would bring about a solution of this crisis,” Merkel said in a speech in Berlin. “If politicians believe the ECB can solve the problem of the euro’s weakness, then they’re trying to convince themselves of something that won’t happen.”

Merkel’s comments underscore German reluctance to assume more liability for taming the debt crisis even as it roils France, the euro region’s second-largest economy, and threatens to trigger a global recession. While President Barack Obama renewed calls for Europe to act, Merkel said “political action” to tighten budget rules is needed to stem the turmoil.

Stocks worldwide fell for a fourth day, the longest stretch of losses in two months, as Europe’s crisis festered. The yield on 10-year Spanish bonds rose as much as 37 basis points to 6.78%, a euro-era high, while the premium France pays over Germany to borrow for 10 years narrowed to 176 basis points after reaching a record 204 basis points.

The euro gained versus the dollar as the ECB was said to buy Italian government bonds, reaching $1.3504 at 5.20pm in Frankfurt after falling to its lowest level since October 10 earlier yesterday.

“Nothing spreads like fear,” said Holger Schmieding, chief economist at Joh. Berenberg Gossler & Co in London. “If the European Central Bank does not intervene forcefully to stop the rot, the panic could spread even further and eventually put the very existence of the euro and the ECB at risk.”

French Finance Minister Francois Baroin renewed a clash with Germany over using the ECB as a backstop, saying in a speech in Paris that central bank support for Europe’s rescue fund is the best way to counter the crisis.

The Frankfurt-based ECB has also resisted calls to provide more support. Mario Draghi, the Italian who took over as president of the central bank this month, said on November 3 that backstopping government borrowing lies outside the ECB’s remit.