THE EUROPEAN Central Bank faces a growing clamour from EU powers to intensify its response to the expanding debt crisis in the euro zone.
The pressure on the ECB comes as it takes a leading role in a co-ordinated campaign by global central banks to provide cheap emergency loans to distressed European banks.
Stock markets surged yesterday after the announcement of concerted emergency measures to tackle the debt crisis and prevent credit markets from freezing up.
The unexpected move by the ECB, the US Federal Reserve, the Bank of England and the central banks of Japan, Canada and Switzerland will make it cheaper from next Monday for banks to borrow US dollars.
Despite the immediate positive response to the measure by stock markets, the ECB faces demands to take further steps.
“While helpful, indeed very helpful, the action of the central banks is not in itself sufficient,” said Polish finance minister Jacek Rostowski, whose country holds the EU’s rotating presidency. “The root cause and the source of the problem is what is happening in the sovereign debt market in Europe.”
Such remarks echo a heightened sense of urgency as EU leaders prepare for a summit next week at which they will be asked to back tough new measures to enforce EU budget rules.
“It’s also important that after those proposals are accepted, there should be action taken in an extremely forceful way to ensure stabilisation of the markets in the period that will follow,” the summit, Mr Rostowski added.
While Poland is not a member of the euro, the country has adopted an increasingly assertive stance in the debate on the crisis.
Mr Rostowski did not specifically refer to the ECB but said “whatever works is fine by me” when asked if the bank should be involved.
He was speaking after a meeting in Brussels at which finance ministers asked the International Monetary Fund to escalate its response to the debt debacle. Some ministers believe the ECB could lend the IMF money which it would lend on to bailout recipients, something that is feasible under EU law.
The ECB argues that the European treaties prohibit it from lending directly to governments and it has declined to buy unlimited quantities of sovereign bonds on the open market. Still, ministers made it clear that its role is under discussion.
“Obviously the issue of central bank involvement is something that’s discussed on the margins of the conference but there’s no proposal from the ECB at this stage,” said Minister for Finance Michael Noonan.
“It’s an evolving situation. The triple-A countries are putting their emphasis on better governance controls before they would consider any other options.”
While Germany remains opposed to a wider ECB role, ministers from other top-rated countries hinted that they might review their stance.
“Since we need an instrument that can act flexibly with regard to the refinancing of banks and states, I can imagine an evolution,” said Austrian minister Maria Fekter.
Finnish minister Jutta Urpilainen said she was willing to think about strengthening the ECB’s role “if there’s nothing else left on the table”. At the insistence of German chancellor Angela Merkel, the new governance measures to enforce EU budget rules will embrace changes to the EU treaties.
The Government, which fears a referendum defeat, has been resisting that. Taoiseach Enda Kenny told the Dáil that he would “engage positively” in the process but added that treaty change could not be achieved overnight.
The debate moves forward this evening when French president Nicolas Sarkozy, who favours a bigger role for the ECB, makes public his proposals in a speech in Toulon. Dr Merkel sets out her vision tomorrow.
It is generally accepted that the new governance rules are unlikely on their own to restore confidence in the battle against the crisis. The risk is aggravated by the spike in Italy’s borrowing costs.
