EU RESPONSE:CO-ORDINATED action by the European Central Bank and the world's most developed states should reassure investor confidence in the global and European economies, the EU executive has said.
The European Commission also said yesterday that Italy and Spain did not need direct financial support. “All of the messages that came out over the weekend from the G20, the G7, different member states and the European Central Bank go in the same direction and send a strong message of confidence to the markets and to the key players,” a commission spokesman said at a press briefing in Brussels.
The comments followed an ECB decision to begin buying Spanish and Italian bonds yesterday in an effort to reduce their cost of borrowing and avert a new financial crisis within the euro zone.
The G7 and G20 group of leading world economies also issued co-ordinated statements pledging to “take all necessary measures to support financial stability”.
The purchase of Spanish and Italian bonds by the ECB brought their 10-year bond yields below 6 per cent, the level that analysts say is unsustainable in the long term.
The decision, which was supported by German chancellor Angela Merkel and French president Nicolas Sarkozy in a joint statement issued on Sunday, provoked renewed concern in Berlin that German taxpayers are bailing out profligate countries.
Senior members of Dr Merkel’s Christian Democrats have called for a special party conference to give them more say over Berlin’s European policy.
“The government should not make decisions of such importance without the agreement of the party,” Michael Fuchs, deputy floor leader for Dr Merkel’s conservatives in parliament, told Der Tagesspiegel daily.
Mr Fuchs said a special party conference was “urgently necessary” if Germany was to decide on the future of the euro and of Europe in the autumn.
CDU parliamentary spokesman on foreign policy Philipp Missfelder said the party should bring forward its party conference planned for November to immediately after the summer break.
The intervention of leading CDU members follows a drop in Dr Merkel’s public approval ratings, which are now at their lowest level since 2006.
German concerns about supporting Italy and Spain were illustrated last week when German Bundesbank chief Jens Weidmann opposed buying the two country’s bonds even when they reached crisis levels.
Germany has rejected calls by European Commission president José Manuel Barroso for a major increase in the €440 billion lending capacity of the European Financial Stability Facility – created by EU members to support states in financial difficulty. It has also opposed the creation of euro bonds, which would enable financially weak countries to raise money through bonds jointly guaranteed by euro zone states, a move analysts believe would push the euro zone towards a fiscal union.
“We don’t need a fiscal union and we should oppose it because that would mark a dissolution of responsibilities,” Michael Meister, the CDU finance spokesman.
However, the ECB intervention to support Italian and Spanish bonds prompted renewed speculation by market analysts about moves towards closer EU integration.
The Royal Bank of Scotland estimates the purchase of some €850 billion of Spanish and Italian bonds may be required to end the continuing financial contagion.
