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There are reports going around about how France and Germany might engage in some kind of new “stability pact” to fight the sovereign debt crisis. This Reuters report, which itself is citing a German newspaper, is fairly sparse when it comes to details, but it would somehow involve quasi-treaty changes and more aggressive efforts at enforcing fiscal conservatism.However, the real bombshell in the report is this line…
The European Central Bank should also emerge more as a crisis fighter in the euro zone. The ECB is independent and governments cannot tell it what to do. But the expectations on the ECB are clear, Welt am Sonntag wrote.
“Based upon these measures, there should be a majority within the ECB for a stronger intervention in capital markets,” Welt am Sonntag said. It quotes a central banker as saying: “If the politicians can agree to a comprehensive step, the ECB will jump in and help.”
If the ECB is merely going to step up purchases, then it won’t do very much.
But if there’s a real quid-pro-quo, where the countries do some kind of stability pact, and the ECB then really moves to suppress yields, then things get interesting.
UPDATE: WSJ has more on this story, and it includes the same comment, about how the pact might spur the ECB to act and do more. The key point here is that this move towards fiscal integration could be accomplished without the need for a total treaty pact, but rather a series of bilateral accords that could be accomplished with as little as 9 Eurozone countries.
MORE: See Edward Harrison’s smart take on things here.