THE CLAMOUR for a major intervention from the European Central Bank to stem the deepening euro zone crisis calmed yesterday when France was forced by Germany to soften its line on the bank’s involvement.
Paris has led calls on the ECB to intervene to stop a market stampede out of euro zone government bonds, a strategy Berlin opposes.
After a meeting in Strasbourg with new Italian prime minister Mario Monti, however, French president Nicolas Sarkozy and German chancellor Angela Merkel said they agreed to “refrain from making any demands, positive or negative”, of the ECB.
The two leaders will table joint proposals in the next two weeks for changes to the EU treaty aimed at integrating budgetary policy within the single currency area.
This initiative is viewed with trepidation in Dublin, as the Government believes it would lead to an Irish referendum, which would be difficult to carry.
However, Dr Merkel insists that this is the only way to enshrine tighter budget discipline. “We have to go down the road of fiscal union,” Dr Merkel said, as she rejected any widening of the ECB’s mandate.
Dr Merkel reiterated her opposition to the idea of so-called eurobonds, floated most recently by the European Commission, as a solution to the crisis. However, she signalled that jointly issued bonds could be an option after firm moves were made towards aligning fiscal policies in the currency bloc.
France remains wary of intrusive surveillance of its national budget, but has recently agreed to support treaty change that would make that a reality in the hope that this would soften Germany’s attitude to eurobonds.
“The fiscal union requires rules. It requires mechanisms for the credible implementation of those rules,” Mr Monti said. “Within this context the [eurobonds] may provide a relevant contribution. Everything is possible within a sound fiscal union.”
Treaty change would require the agreement of all 27 EU members, making an Irish referendum likely. Although the Government views this with unease, Minister for Communications Pat Rabbitte said he was broadly supportive of remarks by European Commission president José Manuel Barroso on the need to toughen budgetary surveillance.
The commission believes this can be done within the confines of the treaties as they stand. “I think after what we’ve been through in the most unprecedented crisis of our collective lifetimes, some element of additional sharing of sovereignty may well be inevitable but until such time as we see the detail it’s difficult to comment on that,” Mr Rabbitte said in Brussels.
Mr Sarkozy said that, if it were not possible to secure a deal on treaty change among all EU member states, the euro zone could embark on “another strategy” of an “intergovernmental agreement”.
"The three of us [Mr Sarkozy, Dr Merkel and Mr Monti] are perfectly aware of the gravity of the situation and together we are searching for shared remedies to this situation," Mr Sarkozy added.
Mr Sarkozy's acceptance that governments should not make demands of the ECB reflects Germany's exasperation with the pressure bring heaped on the Frankfurt bank to become a lender of last resort.
Just hours before the Strasbourg meeting, French foreign minister Alain Juppé said treaty change could take years but that ECB intervention was "urgently" required.
Mr Rabbitte said it was undeniable that the situation in the euro zone was urgent. "I can't see the solution that doesn't involve the ECB. How and to what extent that would happen remains to be considered and, as you know, the ECB has its own very strong views on this question."
Separately, the prospect of Greece receiving a crucial €8 billion bailout improved as EU officials welcomed the delivery of a letter on the bailout from Greek conservative leader Antonis Samaras.
The authorities are withholding judgment until finance ministers meet next week, but the text was described as "better" than in previous correspondence from him.