LONDON — The head of the European Central Bank signaled Thursday that the institution might be willing to take more-aggressive steps to stem the region’s debt crisis, but only if the 17 nations that share the euro unite behind a plan that could tame years of runaway spending.
While falling well short of a pledge to attack Europe’s debt turbulence with the same vigor the Federal Reserve used against the U.S. financial crisis three years ago, the statements Thursday open the door to a potentially critical shift in policy that could provide a long-elusive fix to the region’s fiscal woes.
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To date, the ECB has held back from using more financial firepower to fight the debt crisis, fearing that doing too much would rob the incentive from indebted countries such as Greece and Italy to change their profligate ways and force through deep economic policy changes. But citing heightening economic risks, the ECB’s president, Mario Draghi, hinted that the bank could act to contain the crisis if euro-area nations quickly embrace a historic fiscal pact.
European leaders are scrambling to rush forward such a deal for unveiling at a summit late next week, one that could ultimately see nations such Italy, Spain, France and Germany effectively forfeit full independence over national budgets and potentially give their neighbors the right to slap penalties on big spenders. French President Nicolas Sarkozy said Thursday that Germany and France would present their vision for an agreement Monday.
In the parlance of central bankers, whose words are read like tea leaves, Draghi said that a pact is “definitely the most important element to start restoring credibility.” He suggested that “other elements might follow” if a deal were reached, which observers took to mean more-aggressive bank action, such as a program to reduce borrowing costs for troubled nations and relax lending rules for ailing banks.
If Draghi is marking a policy shift, it could put the central bank on a collision course with its largest member, Germany. A bloc of nations, including France, is in favor of using an agreement to help clear the way for more-aggressive ECB action. But fiscally conservative Germany has remained steadfastly opposed to a more ambitious role in the crisis for the ECB, an independent body governed by an executive board made up of delegates from nations that share the euro.
In an address to supporters Thursday, Sarkozy acknowledged that the ECB must remain independent. But, he added, it also must live up to its responsibilities to help fight the debt crisis. In a hint that the bank may have already decided to accelerate aid for troubled governments, he said, “I am certain the bank will live up to its responsibilities. In fact, I am happy to say it already has.”
ECB action is considered key to a speedy solution to a crisis that European leaders have failed to quell for more than two years. Though a fiscal agreement could solidify the foundations of the euro in the long run, putting one together will take longer than the weeks or months the region might have left to calm jittery investors and prevent a full-scale economic collapse in countries such as deeply indebted Italy. The ECB, meanwhile, could act fast.