Cameron calls for European Central Bank to confront debt crisis

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REPORTING FROM LONDON -– British Prime Minister David Cameron on Friday joined the chorus of those urging that the European Central Bank be drafted as the main firefighter in extinguishing the continent’s blazing debt crisis, a solution so far rebuffed by dominant economic power Germany.

At a summit in Berlin, Cameron declared that “all the institutions of the Eurozone have to stand behind and back the currency and do what’s necessary to defend it.” The statement was a coded call to turn the European Central Bank into a “lender of last resort” able to print euros without limit and to buy up bonds of financially distressed nations such as Italy and Spain.

But Cameron’s exhortation was immediately rejected by his host, German Chancellor Angela Merkel, the leader who is essentially calling the shots in Europe’s response to the debt crisis.

“The British demand that we should put a lot of strength into winning back credibility for the euro is right,” she said. “But we also have to take care not to pretend to have strength that we don’t have, because markets very quickly figure out that that won’t work.”

The exchange in Berlin was a cordial version of an increasingly testy tug of war pitting those who advocate an interventionist role for the ECB to combat the debt crisis -- France chief among them -- against staunch German resistance.

Paris is lobbying for a big-gun solution that would keep the markets from turning their sights from the likes of Greece and Italy to attack France’s own cherished triple-A bond rating. Many analysts agree that deploying the ECB as a lender of last resort would indeed help contain the crisis.

But with its ingrained fear of inflation, Germany has swatted the suggestion aside. So have prominent ECB officials, who contend that propping up troubled nations by directly buying their bonds lies beyond the bank’s purview.

“We haven’t won the argument,” French Finance Minister Francois Baroin said this week, when the disagreement between his country and Germany broke open. “We won’t make it a casus belli, but naturally we continue to think it would be the best way to bring stability to Europe.”

As the political dispute drags on, the debt crisis has escalated, with the markets now selling off bonds and driving up borrowing costs of countries that had seemed safe, such as Austria, which had been regarded as one of the fiscally virtuous Northern European nations.

For its part, the ECB is now openly expressing its dissatisfaction with European leaders’ inaction. The bank’s new president, Mario Draghi, said in an uncharacteristically blunt speech Friday that the Eurozone needed to get its act together and enact a new euro rescue plan it agreed on last month.

“Where is the implementation of these long-standing decisions?” Draghi asked.

Related:

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Spain poised to undergo Europe’s next leadership shake-up

Financial markets fear new threat to Eurozone

-- Henry Chu