Chancellor Angela Merkel warned on Tuesday the eurozone should not rush headlong into a banking union, amid signs Germany is being sucked into the abyss and fresh worries over Greece and Spain.
Speaking at a conference in Berlin, Merkel rebuffed demands — notably from the European Commission and France — to create as soon as possible an EU bank supervisor which would eventually come to the aid of struggling banks.
“I support stronger bank supervision in the eurozone,” she told the German Federation of Industry (BDI) in Berlin.
“But European surveillance must also be more binding — I can’t talk about the direct recapitalisation of banks in other countries if I have not yet created the right to intervene,” she said to applause.
“That means (the approach must be) step-by-step and in the correct order and not hasty and not just so we can say ‘we have something’,” added the chancellor.
EU leaders agreed in June that the bloc’s rescue funds could directly recapitalise struggling banks but only when a broad Europe-wide supervisor under the leadership of the European Central Bank had been established.
But a fresh crack in European unity has emerged, as Berlin sees a thorough approach as more important than haste whereas French President Francois Hollande said at the weekend it should happen “the earlier the better.”
Merkel’s comments came amid new evidence that her own economy, the most powerful in Europe, was increasingly being affected by the crisis and she cautioned that even Germany could not stay immune from the pain forever.
German consumer confidence is stagnating, market research company GfK said in a Tuesday poll, a day after the closely watched Ifo business survey declined for the fifth month in a row to the lowest level since February 2010.
“Germany is not an island but as a strong exporting nation … (it) cannot decouple from the developments in the world and European economies,” she warned as poor consumer and business confidence data have sparked recession fears.
“We have the duty to do as much as possible for domestic demand in Germany so that we can give … a significant growth push to the eurozone,” Merkel said.
Meanwhile, bond auctions in struggling Spain and Italy also gave little grounds for cheer, as borrowing costs in both countries rose as they issued new debt.
And French industrialists are also deeply gloomy about their business prospects, official data showed on Tuesday, putting their confidence at the lowest since 2010.
The downbeat data pushed most European markets into the red in morning trading, with France and Italy the worst hit, down close to half a percentage point.
Asian markets were mixed overnight, with Tokyo edging slightly higher but Sydney, Seoul and Shanghai all losing ground on fears that the spectre of the eurozone debt crisis had still not been exorcised.
Also weighing on markets were fresh problems in Greece, the origin of the crisis, as Greek unions prepared to bring the country to a standstill with strike action and a new warning from the IMF about the nation’s dire finances.
International Monetary Fund chief Christine Lagarde warned on Monday that delays in implementing Greece’s bailout programme, including privatisations, had increased the country’s financing shortfall.
“As a result of the major delay in privatisation (…) and the limited revenue collection, there’s a financing gap, especially if factoring in more time,” Lagarde told an audience in Washington.
“We don’t only need 11.5 billion euros of cuts; we need a series of cuts and additional revenues in order to fill in the fiscal gap,” she said.
Lagarde was on Wednesday to hold talks with Merkel, part of a flurry of diplomatic activity after EU President Herman Van Rompuy warned against getting lulled into a false sense of security amid calmer markets.
Merkel and ECB chief Mario Draghi, arguably the two most influential players in the bloc’s battle against the near three-year debt crisis, were to meet in Berlin later on Tuesday.
No public statement was expected after either meeting.
Meanwhile, the finance ministers of three of the most credit-worthy eurozone states, Germany, Finland and the Netherlands, meet in Helsinki to thrash out the best way to put out the flames that have tipped the bloc into recession.
[Image via Agence France-Presse]