German Chancellor Angela Merkel on Friday made an urgent appeal for decisive political action to fix the root causes of the euro-zone debt crisis that threatens to unravel Europe's single currency and plunge the global economy into recession.
Outlining her government's European policies ahead of a crucial meeting with French President Nicolas Sarkozy on Monday to prepare a package of proposals for the Dec. 9 summit of European leaders, Ms. Merkel said there was no quick fix for Europe's widening financial crisis.
"The European crisis will not be solved in one fell swoop,'' said Ms. Merkel. "It's a process, and that process will take years.''
Ms. Merkel's much anticipated speech follows a landmark address by Mr. Sarkozy on Thursday evening. The French president declared France's willingness to side with Germany and sacrifice a degree of national sovereignty in order to better align economic policies. Ms. Merkel continued on this theme, saying the aim of the European Union summit next week is to change the European treaty to allow fiscal policy coordination.
"We are going to Brussels with the intention to change the EU treaty," Ms. Merkel said. "The goal is a fiscal union that enforces both fiscal discipline in its members and has the necessary instruments to effectively handle a crisis."
Ms. Merkel emphasized that her strategy has always been to use the crisis as an opportunity to achieve long-term change in the European Union, especially to make significant progress on completing closer political coordination in Europe to compliment monetary union.
The problem is that such long term change cannot stem the immediate crisis.
It is increasingly obvious, analysts say, that only the European Central Bank possesses the firepower to give European governments the time they need in the short-term to thrash out long-term political solutions that get at the causes of the crisis. Ms. Merkel has been pushing for long-term political change to create closer integration of European economic policies.
Germany has vehemently opposed using the ECB as Europe's lender of last resort, saying that politicians need to establish clear political rules for monetary union and robust, automatic sanctions for violators of the restrictions on debt and deficits. Ms. Merkel insisted again on Friday that the integrity of the ECB must be protected. Throughout the crisis, Ms. Merkel, the only European institutions that suffered no loss of credibility were the courts and the ECB.
"The credibility of these two institutions—the courts and the central banks—is of precious value in our democracy and it is our task to protect and preserve them," Ms. Merkel said.
The concession by France to accept automatic sanctions for violators of the monetary-union treaty, tougher guidelines, and European supervision of euro zone budgets is likely to allow Ms. Merkel to be more tolerant of ECB action to prop up euro zone bond markets. After all, the ECB and the German Bundesbank have repeatedly called for clear political direction in the crisis in order to allow the central banks to play a constructive role.
Signs that the ECB and other major central banks are willing to play a larger role in fighting the widening crisis emerged this week. Major central banks joined forces in a coordinated intervention to provide liquidity to global markets and in his first major policy speech ECB President Mario Draghi hinted that the bank would be willing, in certain conditions, to expand its purchases of euro zone bonds. There are limits to what the ECB can and will do—it is unlikely to become Europe's lender of last resort—but this week's actions indicate that, given clearer signs that governments are acting to heal the causes of the debt crisis by correcting fiscal policy errors and taking steps towards political union, the ECB would be willing to do more to combat the symptoms of the crisis and offer more immediate support for bond markets.
"Our currency union needs agreement on questions of fiscal policy," Mr. Draghi said in a speech to the European Parliament on Thursday. "Further elements could follow, but the succession is decisive."
The message is not lost on Ms. Merkel and Mr. Sarkozy. They seem determined to ensure that the political signal that the ECB needs is sounded loud and clear at the next European summit. Mr. Sarkozy laid out his arguments in a high-profile speech in France Thursday evening, announcing that he would meet Ms. Merkel next Monday in Paris to finalize their proposals for closer cooperation in the euro zone ahead of the EU summit. Mr. Sarkozy's proposals on Thursday suggest that France is ready to relinquish part of its sovereignty to help fix the euro-zone construction, bringing Mr. Sarkozy in line with similar proposals made by Ms. Merkel in recent months.
"The only way to protect ourselves is to be the craftsmen of change together with others," Mr. Sarkozy said.
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