France seeks to sway German veto on ECB bailout role

Sun Oct 23, 2011 7:55am EDT
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By Daniel Flynn and Julien Toyer

BRUSSELS (Reuters) - France lobbied on Sunday to overcome German opposition to giving the European Central Bank a central role in bolstering the euro zone's bailout fund, arguing it was the only way to draw a definitive line under the widening debt problems.

Setting a Wednesday deadline for a comprehensive deal to resolve the euro crisis, leaders on Sunday were seeking agreement on a means to boost their 440 billion euro ($610 billion) EFSF rescue fund by enough to support the region's undercapitalized banks and stop the crisis sucking in big economies such as Italy and Spain.

Paris -- with support from most of the 17 euro zone states, including Italy and Spain -- argues the European Financial Stability Fund should be given a banking license, allowing the fund to leverage its lending capacity by tapping almost unlimited credit from the ECB's lending window.

Germany, fiercely protective of the independence of the Frankfurt-based ECB, has argued that using it to leverage the EFSF would violate its mandate, leading to an unusually public disagreement between the two powers which normally chart the course for the bloc. The ECB also opposes taking on the role.

Finland and the Netherlands -- which have emerged as hardliners opposed to the rising cost of euro zone bailouts -- have sided with Germany. But a range of concerned euro zone member states have rallied behind France's position.

"The French are not letting go of it, and insist on their idea. Their position has not changed," one European diplomat from a nation sympathetic to Paris's view said on Sunday.

Eurogroup chair Jean-Claude Juncker, the prime minister of Luxembourg, acknowledged the diplomatic stalemate over the crisis was damaging for Europe: "The outside impression is disastrous."

In an attempt to lay the issue to rest, German officials have said that only two options for leveraging the EFSF remained on the table ahead of Wednesday's self-declared deadline.   Continued...

<p>Germany's Chancellor Angela Merkel arrives at the European Union summit in Brussels, October 23, 2011. REUTERS/Sebastien Pirlet</p>