EUROPE’S LATEST effort to seize the initiative in the debt crisis ran into immediate trouble yesterday as Germany failed to complete a key bond sale and Berlin’s antagonism with Paris over the role of the European Central Bank intensified.
Germany quickly dismissed concerns over its financial position after it was unable to sell more than a third of its 10-year bonds at an auction but the development prompted concern that the advancing debt emergency might yet threaten Europe’s largest economy.
With markets already spooked by rising borrowing costs for France, Austria, the Netherlands and Belgium, the dismal result from the German auction added to the pressure on EU leaders to assert control finally over the debacle.
The sense of anxiety was amplified by EU Commission chief José Manuel Barroso, who told reporters in Brussels that the very existence of the euro was at stake in his pursuit of sweeping new powers for Brussels to intensify its oversight of national budgets.
“The crisis has shown that without stronger governance in the euro area it will be difficult if not impossible to sustain a common currency,” he told reporters in Brussels.
Despite the strong rhetoric about the increased urgency of the situation, German chancellor Angela Merkel dismissed as “extraordinarily inappropriate” the commission’s promotion of a plan to issue “eurobonds” with a common euro zone guarantee.
Further uncertainty surrounds the deepening schism between Germany and France over the ECB’s role.
Dr Merkel issued a blunt warning against any move to trample over the ECB inflation-fighting mandate but French finance minister François Baroin said the central bank must become a lender of last resort to prevent contagion taking hold.
Mr Barroso noted at a press conference that the EU treaties do not allow the ECB to take on such a role.