The Bundesbank means to defend Germany's support of price stability but European Central Bank President Mario Draghi, who promised last week to do "everything necessary" to defend the euro, will have the backing of the United States and the International Monetary Fund at a key meeting of European Central Bank governors this morning.
ECB governors already discussed yesterday Draghi's plan providing for the ECB to jointly take action in the bond markets to bring yields down in the future - a measure opposed by the Bundesbank at a time when the White House is increasing pressure on Europe to find an agreement on a solution to the region's debt crisis.
US President Barack Obama told his French counterpart Francois Hollande in a phone conversation that he welcomed statements by the ECB and eurozone leaders over the need to defend the 17-currency area . Obama also "encouraged their efforts to take decisive action".
An ECB compromise could lead to a joint action by the central bank on the permanent rescue funds ESM-EFSF to bring down the spread, as anticipated yesterday by Italian Prime Minister Mario Monti.
In an interview released at the end of June but published yesterday, Bundesbank President Jens Weidmann called on the ECB not to place too many demands on the central bank.
Weidmann, who already held private talks with Draghi, said that the Bundesbank would do everything in its power to avoid the central bank being used for fiscal policy objectives.
He also warned against majority decisions in the ECB without the bank's support, given its importance in the eurozone, something which Draghi would like to avoid in order not to create a fracture in the ECB.
The differences between northern European governments and the US are major, with Washington putting pressure on Europe to solve the debt crisis for the impact it is having on its domestic economy.
As the Fed is buying time and postponing possible aid to September, US Treasury Secretary Timothy Geithner asked Europe for measures to lower the interest rates of countrys carrying our reforms, in a reference to Spain and Italy. Geithner has just returned to the US after meeting Germany's Finance Minister Wolfgang Scheuble and Draghi.
Monti said today that Italy has no intention yet of activating European anti-spread mechanisms, which "could be perhaps necessary given the markets' slow reaction to the efforts undertaken and the results obtained".
He also called, in due time, for the banking license of the ESM rescue fund.
As the Federal Reserve is ensuring low interest rates until the end of 2014 and has declared it is ready for action, the International Monetary Fund has also said, through its director general Christine Lagarde, that the fund will never leave the negotiating table with Greece and that monetary policies can do much to stem the crisis.
The ECB meeting is not likely to be the 'game-changer' called for by the US and the Rome-Paris axis. Markets know that and have remained cautious (while the Btp spread has lowered to 453 points).
Germany's Economy Minister Philipp Roesler has said Chancellor Angela Merkel, the finance minister and himself all agree that a banking license for the ESM is not a solution.
Though unlimited liquidity by the ECB to the stability fund is not an option so far, the ECB could re-open the acquisition of state bonds, betting on Spain and Italy, with interventions that should go beyond the limit imposed by the Bundesbank for operations between May 2010 and March 2012 of 20 billion euros a week.
In statements regarding contacts between European leaders, Monti said talks are focusing on "some form of intervention by the EFSF, ESM and the ECB in a number of combinations".
He also addressed ECB governors, and the Bundesbank in particular calling on "all members of the European central bank system to have the same respect for the ECB's independence which governments have".
Talking about the possibility of transforming the ESM in a bank, he said it would "be of help and I think that, in due time, it will happen". The timing however could not be right yet: the ESM must still kick off and it will not do so before September.