LONDON — Leaders from the euro zone’s four largest nations – Germany, France, Italy and Spain – agreed Friday to back a plan to pump as much as $164 billion into the region’s moribund economy, with German Chancellor Angela Merkel signaling a new willingness to use fiscal stimulus as a tool to fight Europe’s deepening financial crisis.
Merkel, nicknamed “Frau Nein” or “Mrs. No” for her resistance to deploying aggressive action in Europe’s 2½-year-old debt crisis, has thus far maintained that deep budget cuts are the best cure for what ails Europe. But her bow Friday toward limited injections of cash aimed at spurring growth and creating jobs indicated a victory for President Francois Hollande, France’s new Socialist leader who has sought to make stimulus a new part of the region’s crisis management plan.
But if Merkel seemed to give in on stimulus, she held firm on the larger question of how and when to roll out bigger fixes to the euro currency union that, in the coming months and years, could begin to transform the euro zone from a loosely integrated group of 17 nations into a centralized bloc more similar to U.S. states. At the same time, Merkel seemed to reject the short-term fixes to the crisis being floated by troubled Spain and Italy, whose economies are weathering severe stress as panicked investors dump their government bonds.
“We came together on a shared vision of the economic and monetary union,” Hollande said after the meeting of the four leaders in Rome.
The “mini-summit” was aimed at laying the groundwork for a broader European Union summit in Brussels next week. But while the outcome Friday suggested that the region’s top leaders were managing to compromise on some issues, they were clearly still divided on others, with analysts warning that the plan set to emerge from next week’s summit might fall short of already diminishing market expectations.
In an indication of the seriousness of Europe’s woes, the European Central Bank on Friday said it would broaden the type of securities it accepts as collateral from euro-zone banks in exchange for loans — a move that could help funnel more cash to ailing banks in Spain.
The move came as the fallout from Europe’s crisis was spreading beyond the euro zone, with the Moody’s rating agency downgrading 15 global banks including Bank of America and Citigroup, as well as four of Britain’s largest financial institutions, citing worries about their exposure to volatile world markets.
The four leaders came together Friday only six months after European Union governments forged what they claimed was a major step forward in combating the crisis, agreeing to a German-backed austerity treaty that automatically punishes member states that borrow too much and overspend.
There is now widespread recognition that the austerity treaty was too narrow to address the broader problems plaguing Europe. Next week, leaders will take yet another stab at it, but analysts caution that a solution may not come together with the speed global markets are demanding, potentially leading to a full-scale investor panic in Spain and Italy.