The market bid the value of the euro down below $1.30 for the first time since January, and pushed the interest rates the Italian government must pay on new bond issues up again, apparently unconvinced that a little more austerity and a little more bailout money would save the euro.
The European Central Bank continued to face pressure to step up its purchases of euro zone government bonds. But the head of Germany’s central bank, the Bundesbank, Jens Weidmann, repeated that his country opposed using the European Central Bank too rashly to back up governments that need to reform themselves first. Mr. Weidmann also said the Bundesbank would provide new money as a loan to the International Monetary Fund only if countries outside Europe did so as well.
In a speech on Wednesday at the German Finance Ministry in Berlin, Mr. Weidmann called the Brussels deal “encouraging,” but insisted that the idea of “creating the necessary money through the printing presses” be abandoned. He spoke instead in the moralizing tones for which the Germans have become known during the crisis.
“It would be fatal to completely remove the disciplinary effect of rising interest rates,” Mr. Weidmann said. “When credit becomes expensive for states, the appeal of further borrowing sinks. Good fiscal policy must be rewarded through the credit costs, bad punished.” Rescue funds, Mr. Weidmann said, can accomplish only one thing: “Buying time, time that must be used to solve the fundamental problems.”
Meanwhile, at least four more European Union members — none of them using the euro — have expressed reservations about the agreement, which only Britain definitively opposed at the summit meeting. Some leaders said in Brussels that they wanted to consult their parliaments. Hungary, Sweden, Denmark and the Czech Republic now say they want to see the text of the proposed treaty, which is meant to enforce strict limits both on members’ annual budget deficits and on their cumulative debts, before fully committing themselves. France and Germany hope to have a draft of the treaty approved by the end of March and ratified by the end of 2012.
The fiscal strictures are meant to prevent future crises, but the financial markets appear to be much more focused on whether the euro zone nations will put their money where their mouths are now, when they say they will defend the euro and its members. Beyond the bailout funds already in place, the Brussels agreement calls for member nations’ central banks to provide 200 billion euros ($259 billion) to the I.M.F. to create a bigger “firewall” of money that would help protect heavily indebted euro zone states from speculative pressure.
The hope is that outside countries will contribute as well. In Brussels on Wednesday, a senior European official said Russia might provide up to 10 billion euros; Russia holds about 40 percent of its foreign-currency reserves in euros and wants a stable currency, the official said.
Some in Europe say more firepower is needed. Ireland’s European affairs minister, Lucinda Creighton, said in Paris on Wednesday that the European Central Bank should become a lender of last resort for the euro zone. “Having a fiscal compact in place by March is desirable, but I don’t think it’s going to save the euro,” she said.
What she wants, Ms. Creighton said, is “ideally a very clear declaration from the E.C.B. that it is prepared to do whatever is necessary to save the currency, and it is the ultimate backstop.” She added, “I don’t think we’re there yet, but I feel we will end up there.”
Germany, of course, disagrees.
The markets also appear to want more aggressive action by the European Central Bank while new prime ministers in Italy and Spain push through difficult economic changes. But the bank may also want to keep pressure on the Italian and Spanish Parliaments and governments to follow through. On Wednesday, Italy — with 1.9 trillion euros of cumulative debt — had to pay 6.47 percent annual interest to sell its five-year bonds, up from 6.30 percent last month, while Germany, perceived as safe, sold two-year notes priced to yield 0.25 percent, a record low.
Steven Erlanger reported from Paris, and Nicholas Kulish from Berlin. David Jolly contributed reporting from Paris, Alan Cowell from London, and Stephen Castle from Brussels.
Article source: http://feeds.nytimes.com/click.phdo?i=17e4b89f6641238ac8083a181a10e022
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