Angela Merkel, German chancellor, reinforced her backing for the European Central Bank and its new bond-buying proposal, underlining a more emollient tone in her approach to the eurozone crisis.
The bond-buying plan confirmed by Mario Draghi, ECB president, earlier this month has eased market fears about a eurozone break-up. But it has been strongly criticised by some politicians, commentators and the Bundesbank.
Speaking at her annual summer press conference in Berlin, Ms Merkel firmly restated her blessing for Mr Draghi’s plan to intervene in the eurozone sovereign bond markets – under strict conditions – to keep down borrowing costs for the most indebted member states.
“The German government has made it clear it believes that monetary stability issues justify the ECB’s latest decisions,” the chancellor declared. “If the ECB comes to the conclusion that money supply is difficult ... then the central bank must take corresponding measures to ensure monetary stability. We don’t lay down limits for that.”
Ms Merkel’s appearance before the press had been delayed out of apparent deference to the German constitutional court, which was weighing the future of the eurozone’s €500bn rescue fund, and its new fiscal compact, during the summer months.
The constitutional court had set an upper limit of €190bn for Germany’s financial guarantees for its partners – but that referred specifically to the ESM, she said. It had nothing to do with ECB spending on bonds, as some German critics contend.
As well as being effusive in her support for the independence of the ECB and its president, Ms Merkel expressed sympathy for the Greeks and support for the Spaniards.
She even hinted at measures to stimulate more growth in the German economy, although she stopped short of revealing any precise proposals.
But she still showed there was an iron fist in her velvet glove, insisting that eurozone governments must reduce their debts to regain the trust of financial markets. Austerity and growth should go together, she said, and structural reforms were essential to recover competitiveness.
When asked about how much “room to breathe” she would grant the new Greek government, she admitted the pain of austerity was falling on the poorest. “My heart bleeds for them,” she said.
Rich Greeks who had left the country should support their homeland, she said, while the Greek government stuck to its commitments. She says she does not want Greece to be forced to leave the euro. But the chancellor also knows the German parliament is not in a mood to approve a third rescue programme, however sympathetic she may be.
Ms Merkel seemed confident, but she is still walking a political tightrope. She has to persuade the markets and her European partners that she will “do what it takes” to protect the common currency, while convincing her own supporters that she will not squander hard-earned German taxpayers’ money. She does so by insisting that the border between fiscal and monetary policy must not be breached.
In particular, she refused to criticise Jens Weidmann, her former economic adviser and now president of the Bundesbank, for voting against the Draghi plan, and revealing in public that he thought it too close for comfort to using ECB cash for government financing. His intervention, said Ms Merkel was “perfectly understandable and welcome”.
With just 12 months to go before the German general election, when she will stand for a third term in office, Ms Merkel declined to rule out a future “grand coalition” with the opposition Social Democrats, while insisting she would prefer to keep her present centre-right alliance with the liberal Free Democrats. Polls suggest a CDU-SPD alliance is the most likely to have a working majority.
In a grand coalition, the chancellor declared, there was always someone else who wanted to be chancellor. In her present government, Philipp Rösler, FDP leader and vice-chancellor, was perfectly content to accept his subordinate role. “I can understand that.”
It was a classic put-down by the chancellor, and a remark that leaves her with all her options open, just as she intended.