Germany rejected proposals to combine the current and permanent euro-area rescue funds as Chancellor Angela Merkel’s government said divisions may prevent agreement on a debt-crisis strategy among all 27 European Union states this week.
Germany will oppose any attempt to change an agreed sequence, in which the permanent European Stability Mechanism will take over from the current rescue fund at an appointed time, a German official told reporters in Berlin today on condition of anonymity because the negotiations are private.
The rejection came amid divisions among the 27 European Union member states on the latest bid to deliver the euro area from its two-year-old crisis as the leaders head to a Dec. 8-9 summit in Brussels. A German-French push for closer economic ties won the backing of U.S. Treasury Secretary Timothy F. Geithner, who on a visit to Europe urged governments to work with central banks to erect a “stronger firewall” to end the debt crisis.
The German official said not all EU member states appreciated the seriousness of the situation in light of pressure to reach an agreement at the summit. Should the full EU fail to reach consensus, the group of 17 states that share the single currency must press ahead with EU treaty change alone if necessary, the official said.
The euro reversed earlier gains versus the dollar and the yen after the official’s comments. The euro weakened 0.2 percent to $1.3374 at 1:05 p.m. in Frankfurt after climbing as much as 0.5 percent. The single currency fell 0.1 percent to 104.06 yen. The Japanese currency was little changed at 77.74 per dollar.
Merkel and French President Nicolas Sarkozy said in Paris two days ago that they had agreed to press fellow leaders to back plans to bring in the 500 billion euro ($669 billion) ESM in 2012, one year earlier than envisaged. Operating the ESM in combination with the 440 billion-euro temporary fund, the European Financial Stability Facility, next year would potentially boost Europe’s anti-crisis resources to 940 billion euros, two people familiar with the discussions said in October.
The two leaders’ effort to win backing for EU treaty changes designed to enforce stronger budget rules faced hurdles from countries such as the U.K., which has said it will seek to extract concessions. British Prime Minister David Cameron this week said no powers would be ceded to the EU without a referendum and pledged to “make sure Britain gets something” in return for relenting to treaty changes.
Germany Opposes U.K.
Germany opposes U.K. efforts to win advantages on financial regulation for any treaty backing, Financial Times Deutschland reported today. Euro-area governments will push on in a separate meeting on Dec. 9 and possibly through the weekend if a larger compact doesn’t emerge, the newspaper said.
Meanwhile, Geithner’s comments backing the Merkel-Sarkozy agenda were more upbeat than his recent remarks urging Europe to move faster. In Europe in September, Geithner asked leaders to set aside their differences to excise “catastrophic risks” from markets, prompting European criticism of U.S. debt levels.
“This of course will take time” and “a very substantial commitment and a sustained commitment of political will,” he told reporters yesterday in Berlin. Financial crises are resolved when governments and central banks create “conditions that make it compelling for investors to take the risk involved in lending to governments and to banks.”
Geithner, who held talks with Sarkozy in Paris today after meeting in Frankfurt yesterday with European Central Bank President Mario Draghi and Bundesbank President Jens Weidmann, declined to comment on speculation the ECB could step up bond purchases. Draghi said last week that “other elements might follow” if European leaders agree on a “new fiscal compact.”
German Finance Minister Wolfgang Schaeuble said earlier yesterday that the Standard & Poor’s warning for 15 euro-area governments, including AAA rated Germany and France, will help force leaders ratchet up efforts to resolve the crisis.
A day after Merkel and Sarkozy strengthened their push for new rules to tighten euro-area economic cooperation, Schaeuble called S&P’s warning the “best encouragement” to drive toward a solution at the Brussels summit.
Geithner said that the International Monetary Fund can play a helpful role in the crisis and that the U.S. will support its efforts. U.S. officials have said that they don’t support new taxpayer money being given to the IMF for the crisis.
The German official speaking today said EU leaders will discuss the International Monetary Fund’s role in the debt crisis, though may not take a final decision.