Pressure mounts on ECB after investors judge EU summit a failure

PRESSURE mounted yesterday for the European Central Bank to intervene more decisively after financial markets judged that yet another EU summit had failed to resolve the eurozone’s debt crisis.

But Germany’s powerful central bank chief JensWeidmann, an influential voice in the ECB, made clear his opposition to ramping up the ECB’s purchases of eurozone government bonds. He also said the Bundesbank would only provide fresh funds for the IMF eurozone fund if non European countries did also.

There was also growing doubt about the ability to have an intergovernmental fiscal compact involving all 17 eurozone countries and up to nine others as opposition grew in Sweden — a non eurozone country — and the Netherlands, which uses the currency.

European Affairs Minister Lucinda Creighton said last week’s summit agreement was not going to stop the crisis. “Having the fiscal compact in place by March is desirable but I don’t think it’s going to save the euro,” she said on a visit to Paris.

“Ideally (I would like to see) a very clear declaration from the ECB that it is prepared to do whatever is necessary to save the currency, and it is the ultimate backstop,” Ms Creighton said. “I don’t think we’re there yet but I feel we will end up there.”

Ireland and France saw eye-to-eye about the need for the central bank to act as lender of last resort, but there was no consensus on this yet, she said.

Paris has toned down calls for ECB action, stressing its respect for the bank’s independence, partly in deference to its close alliance with Germany.

Ms Creighton warned that the crisis was likely to accelerate when countries such as Italy and Spain went to markets in January and February to raise funds. “They will be challenged. We’ve yet to see the scale of that challenge.”

All eyes will be on Berlin tomorrow when the Bundestag will vote on the new EU bailout, the European Stability Mechanism which the summit agreed should be introduced in July, a year early. Some influential members of chancellor Angela Merkel’s Christian Democrats voiced concern over the proposed deal.

Bundestag speaker Norbert Lammert said, “The Bundestag will study whether constitutional problems could arise from the EU Commission or a European currency chief intervening directly in national budgets and parliament’s control of the budget”.

The euro sank to an 11-month low against the dollar, stocks slid and Italy had to pay a euro-era record yield to sell 5-year bonds yesterday as nervous investors awaited a possible credit rating downgrade for one or more eurozone countries. This reflected a lack of patience and faith by the markets in the EU leaders’ ‘step at a time’ approach. Ms Creighton said it would be a matter of great concern to the whole euro area if France were to lose its AAA rating.

European Council president Herman Van Rompuy has been tasked with reporting on how to “deepen fiscal integration” which he said would include eurobonds in March. So far this has not given the ECB the kind of push it wants to begin the unlimited intervention in markets many believe is now essential.

Additional reporting by Reuters.