December 5, 2011
European leaders will take another run at fixing the debt crisis this week after the failure of their fourth rescue blueprint sparked intensified concern the 17-nation euro area was on the brink of unraveling.
With a European Union summit in Brussels looming Dec. 9, U.S. Treasury Secretary Timothy Geithner arrives in Frankfurt tomorrow to prod political leaders and the European Central Bank holds a policy meeting Dec. 8. Today, Chancellor Angela Merkel and French President Nicolas Sarkozy will hold talks in Paris in an attempt to bridge differences on a crisis resolution.
Safeguarding banks, limiting the damage to Italy and Spain and finding additional rescue funds may hinge on the response to Franco-German demands for closer economic integration and tougher policing of fiscal rules. Markets climbed last week as investors looked toward the latest plan to rescue the 17-nation euro, betting that a new regime of budget rules at the summit may clear the way for more intervention from the ECB.
“The door should swing open for the ECB to become more aggressive,” Erik Nielsen, global chief economist at UniCredit SpA, wrote in a note to clients yesterday. Stepped-up bond purchases by the ECB will “restore a degree of sanity.”
The German and French leaders continue to differ on matters such as the role of the ECB and sanctions mechanisms for euro- area states that violate deficit rules, Le Journal du Dimanche reported yesterday. The two nations are leading the push for closer economic ties among euro nations and locking in tougher enforcement of budget rules to counter the debt crisis.
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