ECB backs eurozone rescue plan, with reservations

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The European Central Bank backed Thursday a draft EU Council decision on a permanent European Stability Mechanism (ESM) for countries that share Europe's single currency.

"It is desirable to establish a permanent crisis management framework which can ... provide temporary financial support to member states" having trouble with access to market financing, an ECB statement said.

In response to a request for its opinion on the proposed mechanism, the ECB urged European Union countries "to approve the draft decision promptly in order for it to enter into force at the date provided in it, which is 1 January 2013."

The statement also said that the ESM "should be granted the capacity to employ an appropriate range of instruments in order to be able to effectively fight against contagion in situations of acute market instability."

That might include the purchase of eurozone government bonds on secondary markets or the issuance of a common eurozone bond, two ideas opposed by Germany in particular.

The ECB nonetheless expressed concern that current plans for the ESM, which should bolster eurozone stability, foresees "an intergovernmental mechanism" to manage crises rather than one based on EU institutions.

The central bank would prefer a crisis management mechanism that relied on EU bodies, it said.

ECB leaders have often supported proposals by the European Commission and European Parliament over initiatives by member governments such as Germany and France.

The central bank has also urged governments to work harder to resolve the eurozone debt crisis, and said involvement of the International Monetary Fund (IMF) was "indispensable for providing strong and lasting incentives for sound fiscal and economic policies."

© 2011 AFP

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