Germany, France study ways to deepen fiscal union
European officials have agreed on how to leverage a key rescue fund, while Germany and France are looking at how to deepen fiscal integration in the euro zone, according to news reports.
Finance ministers from the euro zone were slated to meet Tuesday and were expected to agree to rules for borrowing against the European Financial Stability Facility (EFSF), as well as guidelines for intervening in the euro-zone bond markets and providing credit lines to governments, according to a Reuters report Sunday.
Such an agreement would mark a key milestone for the 440-billion-euro-strong ($586 billion) EFSF, after European leaders agreed to leverage the fund last month.
Meanwhile, the International Monetary Fund denied a report in Italy’s La Stampa that the IMF would offer up to €600 billion in aid to Italy. Analysts had cited the report as helping Asian stocks rally in Monday trading.
However, an IMF spokesperson said in a statement: “There are no discussions with the Italian authorities on a program for IMF financing.“
As for longer-term measures, French and German officials were discussing deeper financial integration among members, Reuters said in a separate report.
Due to difficulties in amending European Union treaty language, the effort may focus on securing agreement that would involve only those EU nations which use the euro.
“The goal is for the member states of the common currency to create their own Stability Union and to concentrate on that,” Reuters cited German Finance Minister Wolfgang Schaeuble as saying in a television interview with ARD on Sunday.
Analysts at Brown Brothers Harriman said in a note Monday: “Germany is pressing hard for tougher budget rules … It requires real sanctions, tighter than the ones Germany and France wiggled out of a decade ago. This is nothing less than a new dimension to the governance of the euro zone.”
Worries about Europe had intensified Friday after Standard & Poor’s downgraded Belgium’s sovereign credit rating, citing difficulties for the government there in reducing its debt.
Belgium, Italy, Spain and France all have government debt auctions slated for the week ahead, with the markets likely to watch the results closely to monitor pressure on those nations’ borrowing ability.