FRANKFURT, GERMANY: On the eve of Greek elections, Europe’s central bankers are hoping to avert a financial panic by signaling their readiness to support banks.
At the same time, the head of the European Central Bank is calling on nations to pursue steps that could eventually boost economic growth, such as easing corporate regulations.
For now, the stresses gripping Europe from its debt crisis are tightening. Governments are struggling to borrow. Banks are wary of lending to each other and their customers. And nervous depositors are pulling money from Greek and Spanish banks.
As European officials head for a Group of 20 summit in Mexico, where they’ll face pressure to defuse the crisis, central bankers say it’s up to government leaders to find a solution.
Mario Draghi, head of the ECB, said Friday that the central bank would continue to support solvent banks if the election results Sunday point to Greece’s exit from the euro currency union and ignite panic in financial markets.
But what the eurozone needs most, Draghi said, is a tighter fiscal and political union to strengthen individual countries’ banking systems.
Draghi and the central bank favor stronger action by political leaders to boost confidence and ease pressure on the ECB to take more emergency steps. Such steps might include further low-cost loans to banks or direct purchases of government bonds.
The ECB chief said he and other European Union officials are drafting proposals to revamp the eurozone and will address them at a summit of EU leaders late this month.
Those proposals could include more centralized supervision of banks and individual countries’ spending; action to stimulate growth; and some system of common borrowing that might prevent government defaults.
Still, any such program could take years to implement and would likely raise political objections.
In the meantime, Draghi said the ECB would keep supporting the banking system by providing credit, when necessary, to solvent banks.
But he argued that governments must also act. He called on them to take steps to boost growth by easing or dismantling business regulations.
Such action could make it easier for companies to hire and fire and to cut through bureaucratic obstacles to starting businesses.
In Berlin, German Chancellor Angela Merkel told a group of owners of family-run businesses Friday that she would resist any pressure at the Mexico summit to quickly adopt steps such as commonly issued bonds or continent-wide bank deposit insurance.
“Germany will not be convinced by all the quick solutions like eurobonds, stability funds, European deposit insurance funds,” Merkel said at a conference.
“I argue for addressing the roots and not fighting symptoms,” she said.