Bloomberg News

ECB Firepower Needed to Quell Debt Crisis, OECD’s Elmeskov Says

December 13, 2011

Dec. 12 (Bloomberg) -- The European Central Bank needs to provide more support to ease the euro area’s sovereign debt crisis, said Joergen Elmeskov, the acting head of the Economics Department at the Organization for Economic Cooperation and Development.

“The kinds of things we have seen do not add up yet to what one would call overwhelming firepower,” Elmeskov said today in an interview in Oslo. “It’s difficult for us to see such overwhelming firepower being assembled without to some degree making use of the ECB’s balance sheet.”

European Union leaders last week committed to tightening new fiscal rules, providing an additional 200 billion euros ($267 billion) to the euro war chest, and speeding up the establishment of a permanent rescue fund next year. The Franco- German-led agreement is part of an effort to reassure investors that Europe can master the crisis.

The accord opens the way for the ECB to intensify its role in the crisis, Irish Deputy Prime Minister Eamon Gilmore said in an interview with Dublin-based broadcaster RTE yesterday. The ECB has signaled “that it would strengthen its role and enhance its role following the conclusion of an agreement,” he said.

Germany and the ECB have resisted calls for an expansion of the central bank’s bond-buying program. ECB President Mario Draghi last week denied hinting that the ECB would automatically support such an accord with more bond purchases.

European leaders have given themselves until March to complete the language for the new rulebook and plan to set up the region’s permanent rescue fund, the European Stability Mechanism, a year earlier than planned in 2012. They also aim to reassess plans to cap the overall lending of the ESM at 500 billion euros.

“It is certainly a step in the right direction,” Elmeskov said. “What has happened over the weekend is useful in terms of setting out the future fiscal framework in greater clarity.”

--Editors: Jonas Bergman, Christian Wienberg

To contact the reporter on this story: Josiane Kremer in Oslo at jkremer4@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net


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