Paris piles pressure on Berlin over ECB rescue role
France has renewed pressure on Germany to allow the European Central Bank to act as a final lender to save the eurozone from its current crisis – a move Berlin has strongly fought against.
The latest pressure came from French finance minister Francois Baroin, who used a speech yesterday to argue the Frankfurt-based bank should be used to support the European Financial Stability Facility, the €440bn bailout fund.
Berlin, already wary of the threat of inflation given the EFSF’s planned increase in size to beyond €1trn, is hesitant to have the ECB involved in lending.
But in a veiled reference to a greater role for the ECB, Baroin said: “The best way to avoid contagion is to have a solid firewall. We haven’t won the argument [but] we continue to think it would be the best way to bring stability.”
It is increasingly in France’s self-interest to take decisive steps to stop the crisis spreading from peripheral nations’ debt. Some onlookers see the ECB as such a step.
Yields on French debt have climbed 3.801%, while the cost of insuring against default of France’s 5-year paper has hit record highs of 234bps. This means it costs €234,000 to insure €10m of 5-year bonds. France is due to auction €8.2bn of various forms of debt.
But German chancellor Angela Merkel (pictured, on left) has stood firmly against allowing the ECB to take on a lender-of-last-resort role.
She said: “Politicians might believe the ECB can solve the problem of euro weakness, but they are trying to convince themselves of something that will not occur.”
She has implicit support from new ECB president Mario Draghi, who has said supporting eurozone public borrowing is not in the ECB’s remit.
Baroin noted Germany’s “almost sociological concern” about centralised intervention, given the threat of inflation and hyperinflation stemming from it.
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