Should European Central Bank (ECB) President Mario Draghi fail to come up with an effective tactic to quell market fears over the eurozone crisis, it could make the situation worse than ever.
That could be a tall order, however, as Germany persists in opposing the notion of a banking license for the European Stability Mechanism (ESM), which has been pushed by Prime Minister Mario Monti of Italy as a means of combating the crisis despite Germany’s opposition. Amid the controversy, both the ECB and the Bank of England (BoE) left rates and strategies unchanged.
Bloomberg reported Thursday that after Draghi’s bold words about protecting the euro last week, markets expect him to deliver some sort of drastic action to do so and to relieve pressure on bond yields, which have climbed steadily higher for Spain and Italy.
However, German officials immediately voiced opposition to the notion that the ECB could buy bonds on a large scale, saying that it was not its mission to do so. The opposition from within her own party makes it that much harder for German Chancellor Angela Merkel as well. She has said publicly she would support saving the euro but has not provided details on policies she would back.
Monti challenged German officials Wednesday by saying that the ESM would be granted a bank license. In Helsinki to meet with Prime Minister Jyrki Katainen of Finland, Monti pushed the envelope with Germany and said in a news conference, referring to the bank license strategy, “I think this would help, I think this will in due course occur.”
Monti is on a persuasion mission among the leaders of the eurozone to push for more drastic strategies that could be more effective in fighting the crisis. He had already been to Paris to meet with officials there, and was headed next to Madrid on Thursday to meet with Prime Minister Mariano Rajoy.
Bundesbank President Jens Weidmann had said after Draghi’s promise to keep the euro together “whatever it takes” that the ECB should not exceed its mandate to fight inflation. He also emphasized Germany’s importance in setting common strategy in the eurozone.
Economy Minister Philipp Roesler of Germany said in the report after a weekly cabinet meeting, in which he stood in for Merkel, “The chancellor and we have discussed it and we are united that a bank license cannot be our way.” He added, “Fiscal discipline and economic reforms have to be the way forward. Other ways are not suitable.”