Premiers lock horns over ESM bank license legality

Ben Southwood
Follow Ben
GERMAN chancellor Angela Merkel clashed with Italian premier Mario Monti at a meeting in Berlin yesterday, disagreeing whether the European Stability Mechanism (ESM) could be given a banking license.

Merkel argued that current treaties forbade giving the ESM extended bond-buying powers, but Monti argued that difficult times called for a more flexible approach.

However, leaders showed more unity on Italian reform, which Merkel described as “impressive” and “wide-ranging”.

European Central Bank president Mario Draghi agreed with his compatriot on the necessity of special intervention, saying that “fragmented” markets sometimes justified “exceptional measures.”

“It should be understood that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools,” he wrote in German daily die Zeit.

But French Prime Minister Jean-Marc Ayrault appeared to side with Germany, saying yesterday that Paris was as determined as Berlin to press for stronger economic governance in the Eurozone.

Nevertheless, Greek politicians were still unable to thrash out the specifics of the €11.5bn cuts package that is a condition for further aid.

Whatever her reception abroad, Merkel’s popularity is booming in Germany, where she is enjoying her best polling results for four years.

Her Christian Democratic Union, and its Bavarian sister party, the Christian Social Union, are polling at 39 per cent, compared to just 26 per cent for main rivals the Social Democratic Party.

But gloomy economic results continued to come in across Europe. Outside the Eurozone, but heavily dependent on EU trade, Denmark saw its economy shrink by 0.5 per cent in the second quarter. Italian retail sales remained 0.5 per cent lower than a year earlier, though they ticked up slightly on the month. And inflation edged up to two per cent in Germany, compared to 1.7 per cent in July, driven by dearer fuel.

Markets showed little response: Germany’s DAX was up 0.1 per cent, France’s CAC was down 0.5 per cent, Spain’s IBEX fell 0.4 per cent and the FTSE 100 slipped 0.6 per cent.