Saturday

25th Feb 2017

Merkel under pressure to move on Spain and Italy

  • Italy wants the eurozone bail-out funds to purchase bonds from troubled countries (Photo: g20.org)

With borrowing costs in Spain and Italy at unprecedented highs, German Chancellor Angela Merkel came under increased pressure at a gathering of the world's 20 top economies (G20) in Mexico to accept the use of eurozone bail-out funds to help them out.

In their final communique, Germany, France and Italy, the G20's three euro-area members said they would take "all necessary policy measures to safeguard the integrity and stability of the area, improve the functioning of financial markets and break the feedback loop between sovereigns and banks."

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

This would mean that the eurozone bail-out funds' rules could be changed so as to allow direct money injection into trouble banks.

Spain's planned €100 billion bail-out for its troubled banking sector has failed to impress markets. Bond sales in Madrid at record interest rates in the past week are feeding speculation that a second, full-blown state bail-out will be needed.

The situation is partly due to Germany's insistence that the bail-out passes through the government balance sheets instead of the money being used to directly re-capitalise banks.

The G20 communique also speaks of "important steps towards greater fiscal and economic integration that lead to sustainable borrowing costs."

This is a veiled reference to plans tabled by Italian Prime Minister Mario Monti to allow the existing and upcoming eurozone bail-out funds to buy up bonds of countries under intense market pressure, without having to ask for a bail-out.

"The idea is to stabilize borrowing costs, especially for countries who are complying with their reform goals, and this should be clearly separated from the idea of a bailout," Monti said during a press conference.

According to the Financial Times, Merkel refused the idea during the public G20 session but in informal talks officials said she was more willing to make concessions, although she did not commit to anything.

The bond-purchasing plan will be taken up again at a mini-summit in Rome on Friday between Merkel, Monti, French President Francois Hollande and Spanish leader Mariano Rajoy.

"Italy has launched an idea which is worth looking at," Hollande told reporters in Mexico. "We are looking for ways to use the European Stability Mechanism for this. At the moment it is just an idea, not a decision. It is part of the discussion."

The G20 communique also noted the commitment of eurozone countries to move forward with "the completion of the Economic and Monetary Union" - the German precondition for any concessions on the bail-out funds or the European Central Bank printing more money.

"Towards that end, we support the intention to consider concrete steps towards a more integrated financial architecture, encompassing banking supervision, resolution and recapitalisation, and deposit insurance," the communique says.

It adds that countries with surpluses (Germany) will boost internal demand so as to narrow the gap to deficit countries undergoing structural reforms.

But in a reminder of how limited Merkel's room for manoeuvre is, the German Constitutional Court on Tuesday ruled that the chancellor must keep the parliament better informed whenever new bail-outs are considered.

Analysis

Eurozone crisis tests the Merkel method

The daughter of a protestant pastor, Germany's Merkel has a near-religious conviction that by cutting debt, European economies will be cured of all ills.

News in Brief

  1. Spanish court jails former IMF chief Rato
  2. Macron proposes Nordic-style economic model for France
  3. Germany posts record high budget surplus
  4. Labour ousts Ukip in Brexit homeland
  5. Dutch lower house approves EU-Ukraine treaty
  6. WTO says Russian pork ban was illegal
  7. Belgian nuclear plant made 'significant progress' on safety
  8. Report: Commission gauging EU support for Poland sanctions

Stakeholders' Highlights

  1. EURORDISJoin Rare Disease Day and Help Advocate for More Research on Rare Diseases
  2. European Healthy Lifestyle AllianceStudents Who Are Considered Fit Get Better Grades in School
  3. QS World MBA TourMeet with Leading International Business Schools in Paris on March 4th
  4. Malta EU 2017Economic Governance: Agreement Reached on Structural Reform Support Programme for Member States
  5. Socialists & DemocratsWomen Have to Work Ten Years Longer to Match Lifetime Earnings of Men
  6. Counter BalanceTrans-Adriatic Pipeline Is a Major Risk for Banks, Warns New Analysis
  7. Martens CentreEU and US Migration Policies Compared: Join the Debate on February 28th
  8. Swedish EnterprisesTechnology and Data Flows - Shaping the Society of Tomorrow
  9. UNICEFNearly 1.4 Million Children at Risk of Death as Famine Looms Across Africa and Yemen
  10. Malta EU 2017End of Roaming Fees: Council Reaches Agreement on Wholesale Caps
  11. Nordic Council of MinistersNordic Innovation House Opens in New York to Help Startups Access US Market
  12. Centre Maurits CoppietersMinorities and Migrations