FRANKFURT (MNI) – There is no end in sight to the Eurozone’s
piecemeal approach to fighting the sovereign debt crisis as political
leaders continue to squabble and the European Central Bank appears not
to be actively pushing for larger rescue funds or the introduction of a
Eurobond.

After European finance ministers failed to heed a request from the
International Monetary Fund to increase the size of the E750 billion
bailout mechanism for debt-stricken states, IMF Managing Director
Dominique Strauss-Kahn warmed that “the piecemeal approach…is not a
good one.”

Addressing the crisis with a more comprehensive, forward-looking
strategy, however, would require closer cooperation and greater unity
within the Eurozone, which appears to be in increasingly short supply.

Eurogroup head Jean-Claude Juncker on Wednesday voiced harsh
criticism of Germany. “They rejected our suggestion [for a eurobond]
before studying it. This way of creating taboos and not considering the
ideas of others is a very un-European manner to go about European
business,” Juncker complained.

The broadside was no doubt all the more painful a day after former
German chancellor Helmut Schmidt — widely reveered as one of Germany’s
greatest post-war leaders — accused German and other Eurozone leaders
of lacking “sufficient power of judgment,” while singling Juncker out as
an exception.

The German government is unlikely to have welcomed Jucker’s
comments as very European either. “We should be calm and
solution-driven,” German chancellor Angela Merkel responded. She had her
spokesman add: “This talking against and about each other should stop.
The markets are taking due note of this disunity.”

The real problem is that all parties are in fact acting all-too
European in their public disunity, thus making comprehensive, preemptive
solutions to the current crisis increasingly unlikely.

The ECB — the sole Eurozone institution that has been able to act
with relative unity, despite some sharp disagreements on the Governing
Council — does not appear to be actively pushing for a larger fund to
restore investors’ confidence in the region’s commitment and ability to
support its larger member states if needed.

On Wednesday, Governing Council member Erkki Liikanen suggested
that current funds available under the EFSF are more than sufficient.
“The actual loans won’t be more than about half of the total sum,” he
said.

Executive Board member Lorenzo Bini Smaghi even suggested that
enlarging the fund may have adverse effects. “It is a question of being
credible in the eyes of the market. If you make it [the EFSF] very big
then markets maybe want to test it,” he said Monday.

Bini Smaghi noted that “for now we’re using only a part” of the
funds available. “But if needed, it should be increased, of course,” he
added. This appears to be in line with President Jean-Claude Trichet’s
comments that government actions should be “commensurate’ with what it
is required.

On Eurobonds, the ECB continues to have “no official position.”
While some Governing Council members have expressed support in
principle, there appears to be an overwhelming view that it is not a
realistic solution in the near-term. Executive Board member Juergen
Stark rejected the idea earlier this week saying that each country “must
vouch for its own debt.”

None of this suggests that preemptive action called for by the IMF
is in the wings. Thus the stakes are raised that markets will continue
to test the Eurozone’s resolve.

–Frankfurt newsroom +49 69 72 01 42; e-mail: jtreeck@marketnews.com

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