The ECB, with its virtually unlimited ability to print money and ease the financial pressure on indebted nations, has been using that power as leverage in pushing the leaders of individual countries to accept an increasingly regional approach to economic challenges. On the table are specific proposals that would overturn the way European governments have long handled their financial affairs.
There have been growing calls for the ECB to use its considerable arsenal more aggressively. Some financial and political analysts say a grand bargain may be in the works: In return for major steps by euro-zone members toward economic federalism, the ECB could buttress struggling countries such as Spain and Italy.
The ECB is widely considered the one institution that could quickly put a stop to the accelerating euro crisis and head off a possible breakup of the currency union.
But instead of offering a quick fix, the ECB has parceled out its help only at critical moments, letting market tensions rise until it can extract concessions from Europe’s elected leaders that are aimed at better financial management. The bank’s willingness to stand aside — and risk further escalation of the financial turmoil — has become a defining feature of the crisis.
With Spain’s economy teetering and concern mounting that Greece may exit the euro zone after national elections this month, European leaders have been under increasing pressure to take significant new steps. These include proposals to regulate financial firms at the European level, offer regional support for weakened banks and issue bonds backed by all euro-zone governments.
On Monday, German Chancellor Angela Merkel offered her most explicit endorsement of some of the proposals. These include establishing a central regulator for European banks, whose oversight has been a jealously guarded — but arguably mishandled — national prerogative.
“I have often said that in the euro zone we need more Europe and not less Europe,” Merkel told reporters in Berlin before a meeting with European Commission President Jose Manuel Barroso. She said the two leaders would discuss “to what extent we need to put systemic banks under specific European supervision to keep national interests from playing too large a role.”
A U.S. Treasury official, meanwhile, said Spain’s deteriorating position, reflected in the soaring interest rates it must pay to borrow money, was having the same effect as previous bouts of market instability — and forcing politicians to act.
“European leaders appear to be moving with a heightened sense of urgency,” the official said, adding that action is expected “over the next several weeks” on issues including moves to bolster the banking systems in Spain and elsewhere.