Monti's Tour Yet to Persuade Germany of the Need for Fiscal Activism
The unelected Italian Prime Minister, Mario Monti, has urged European leaders to get on board with plans to expand the power and responsibility of the European Central Bank. The Germans and Finns are understandably skeptical, while the French and Spanish are more enthusiastic. French President Hollande seems especially keen, saying:
We cannot allow ourselves one minute of inattention.
President Obama has called Monti relating his support for swift and decisive action in Europe.
Monti has been on a tour of many European countries in an attempt to rally support for a plan that would almost certainly allow the ECB to restart a bond buying agenda, thereby shoring up Spanish and Italian debt, and for the proposed European Stability Mechanism to have a banking license. The European Stability Mechanism is currently being examined by Germany's highest court, which will rule on its constitutionality on September 12.
The attitudes of Northern European countries should give those, like Monti, who want more central bank activism reason to worry.
Germany's Vice-Chancellor, Philipp Roesler, said today that granting a banking license to the European Stability Mechanism would be wrong:
The chancellor, the finance minister and I agree that … a so-called banking license for the ESM cannot be our way.
The Finns have already added conditions to additional funds for the Greeks who have failed to meet initial deficit and government spending targets.
As was noted by Andrew Frye and Chiara Vasarri over at Bloomberg:
In AAA-rated Finland, leaders too have been more resistant to facilitating rescues. Finland, the northernmost euro member, demanded collateral for Greece's second bailout last year and has since insisted it will only contribute to Spain's banking rescue if it gets similar security. Finland also wants rescue funds to come with strict terms such as austerity and burden sharing for bondholders.
The euro crisis has brought to light two of the dominating features of Europe that the European Union and the single currency were both designed to dilute.
First, there is a difference, economic and cultural, between what is typically referred to as 'northern' and 'southern' Europe. Many agree that the south was let into the single currency too soon, and that we are now seeing the consequences. Italy, Spain, and Greece are all now looking to how Germany, Finland, and the Netherland react to their pleas for fiscal activism and an increase in aid funds.
Secondly, nothing gets done in Europe, productive or otherwise, when the Germans and the French are not in agreement. Socialist France is now decidedly in opposition to the German approach to handling the euro crisis. How long it will take for the north to be dragged kicking and screaming by central bankers and Eurocrats no one knows, though the ruling on September 12 will be an important indicator.
