FRANKFURT (MNI) – European Central Bank Governing Council members
have added to the pressure on Eurozone leaders to address the sovereign
debt crisis without expecting further help from the central bank.

Their comments came ahead of a key summit in Brussels at which
leaders will work on a new deal designed to strengthen the region’s
banks, boost the bailout fund’s firepower and devise a new roadmap for
Greece.

European finance ministers had promised to deliver a “comprehensive
package” to address the crisis this weekend but as the date drew nearer,
German Chancellor Angela Merkel dampened expectations for a quick fix.

“The chancellor has said that the dreams that are taking hold again
— that with this package everything will be solved and everything will
be over on Monday — will again not be fulfilled,” her spokesman said
Tuesday.

Central bankers warned that politicians should not rely on the ECB
to pick up the pieces from insufficient crisis response once again. “It
is not the ECB’s role to substitute for a lack of true consensus of
European policies,” Governing Council member Luc Coene said Tuesday.

President Jean-Claude Trichet also on Tuesday said that the central
bank “cannot use monetary policy to put right the failings of government
policies,” while Executive Board member Juergen Stark said Monday that
“asking the ECB to do more would challenge its independence.”

In any case, overly aggressive central bank action may be harmful
in the long run, Governing Council member Andres Lipstok warned in an
interview released Tuesday.

“The purchases of government bonds and the massive provision of
liquidity to euro area banks in order to keep monetary policy functional
only help to alleviate the symptoms of the crisis, but do not tackle the
core of the difficulties,” he argued.

“Instead, there is a danger that the active contribution of central
banks might reduce the stimulus of governments to solve the situation,”
Lipstok said.

The ECB has of course issued similar warnings previously during the
crisis only to end up intervening again to avert a financial meltdown
following inadequate government crisis fighting measures.

The ECB’s ever louder “no” may have some effects. According to
media leaks, Eurozone leaders are planing to leverage the bailout fund
without using the ECB to as much as E1 trillion by investing its funds
in a “first loss” insurance scheme by offering guarantees on bonds.

The more contentious issue of a potentially larger haircut on Greek
debt, however, remains entirely unresolved. A re-opening of the July 21
accord to cut Greek bond values by more than the previously agreed 21%
raises risks of a default — against which the ECB has warned tirelessly
— as it is unclear whether a purely voluntary agreement can be reached.

The central bank warned in its last Monthly Bulletin that
substantial private sector contributions triggering a default could
quickly impair other Eurozone member states’ market access and spark
mutually reenforcing sovereign debt and banking sector crises.

Should this scenario materialize, it is hard to imagine that the
ECB will not once again have “to substitute for a lack of true consensus
of European policies.”

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

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