Central bank lowers rates but dashes hopes
BRUSSELS — A move by Europe’s central bank to bolster the region’s economy was overshadowed by worries that political leaders will not act boldly enough to contain the region’s debt crisis at a two-day summit meeting that began here on Thursday.
The optimism of recent weeks swung decidedly back to pessimism, with stocks falling and the cost of borrowing for several major European countries rising sharply.
In Frankfurt, the European Central Bank lowered interest rates for the second time in a little more than a month, signaling that it wants to help slowing economies. But the bank dashed hopes that might ramp up its bond-buying program to contain the sovereign debt crisis, as many have urged it to do to relieve intense market pressure on countries like Italy.
Late Thursday, European leaders here were circulating the draft of a new “fiscal compact” for the currency union, including tighter control of public finances. Disagreement persisted about whether any deal would cover all 27 European Union member states or just the 17-member eurozone, and about whether it would involve amendments to the euro treaty. Leaders were also discussing whether a permanent bailout fund, set to begin operation as early as July, should function as a licensed banker.
Earlier in the day in Washington, President Barack Obama voiced frustration that Chancellor Angela Merkel of Germany and other European leaders were focusing on the wrong problem by negotiating long-term changes to the euro treaty, rather than reassuring the markets and staving off a recession by taking bold short-term action.
“If we see Europe tank, that obviously could have a big impact on our ability to generate the jobs that we need here in the United States,” Obama told reporters in Washington.
“Europe is wealthy enough that there’s no reason why they can’t solve this problem,” he said. “If they muster the political will, they have the capacity to settle markets down, make sure that they are acting responsibly, and that governments like Italy are able to finance their debt.”
Adding to the anxiety, European regulators said on Thursday that many of the region’s biggest banks, including the German giants Deutsche Bank and Commerzbank, needed to raise more money as reserves against potential losses.