“Germany must allow the ECB to inject €3tr”, says Morgan Stanley

By Julia Pastor, in Madrid | The shared understanding between Berlin and Paris, that is, between chancellor Angela Merkel and president Nicolas Sarkozy, has suffered a breakdown for the first time since the euro crisis began. The reason is their different views on what role the European Central Bank (ECB) should be playing for the euro crisis to find a way out.

While France defends giving the European Financial Stability Facility a banking licence to be financed through the ECB, Germany doubts if the institution is able to solve the euro zone crisis under the current treaties, even though Merkel has indicated her willingness to

“transfer part of Germany’s sovereignty, if it is to get stronger economic and political ties”, Santander’s analysts indicate.

The confrontation underlies the fact that Germany is not interested, due to historical experiences with inflation and debt, in ECB’s direct involvement. But France does, because its public debt is sold at a more than double the price of Berlin’s.

At this point of the argument, with the clear intention to support the ECB’s stance, Bank of England’s governor Mervyn King has declared that

“Those expecting the ECB to transform itself into the Eurozone’s political saviour will be disappointed… pushing the ECB to buy sovereing debt indiscriminately will not solve the euro troubles.”

Yet, according to Morgan Stanley’s experts,

“Germany will have to quit its current stance and allow the ECB to inject €3tr, so that the system has enough time for deleveraging and the fiscal measures for bearing fruit.”

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