But those changes would take too long to have any real impact in the crisis, economists say. And perhaps more noticeable to investors this week was an accompanying recommendation that countries be allowed to leave the euro voluntarily, yet another sign that the currency is not as sacrosanct as European leaders had sworn until earlier this month.
Still, there are some signs that Germany’s position may be softening. A group of Merkel’s top independent economic advisers recommended last week that Europe move toward issuing collective debt for the first time, using the gold reserves of all 17 nations to create a $3.1 trillion rescue fund. In exchange for injections of funds, troubled nations would need to make fast progress cutting budgets and implementing major economic changes.
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Peter Bofinger, a member of that adviser group, also called Tuesday for the ECB to become a lender of last resort — setting maximum borrowing rates for euro-zone nations and intervening if markets drive them above that level. The group is influential in Germany, and such calls may spark a shift in attitudes in a country long conditioned to avoid inflation and excessive borrowing at all costs.
Nevertheless, the Germans still appear terrified that printing money to shore up ailing countries — particularly Italy — will rob their neighbors of incentives to cut spending and make long-overdo economic changes.
Italy is a case in point. In recent days, market turmoil has forced out the nation’s longtime prime minister Silvio Berlusconi, who was seen as an obstacle to passing real reform. Its new prime minister-designate Mario Monti, an economist, is expected to win backing in Parliament this week for a freshly unveiled cabinet of technocrats who hope to move quickly toward the kind of economic changes Italy has resisted for decades.
But with Italy’s borrowing costs already brushing up against unsustainable levels, analysts warned that it may not have the time it needs to regain market confidence.
“The Germans are against a more aggressive ECB, but if Italy gets into real trouble, their other options become extremely limited,” said Zsolt Darvas, research fellow at Bruegel, an economic think tank, in Brussels.
Birnbaum reported from Madrid. Staff writer Howard Schneider in Washington contributed to this report.