PARIS — Angela Merkel, the German chancellor, has returned from vacation with an endorsement of the European Central Bank’s conditional support for Spain and Italy, but a Finnish official has suggested that euro zone leaders are preparing for the worst, including a possible breakup of the currency bloc.
Speaking late Thursday at a news conference in Ottawa with Stephen Harper, the Canadian prime minister, Ms. Merkel backed a statement by Mario Draghi, the president of the E.C.B., that the bank would do whatever it took to preserve the euro.
In contrast to some members of the German Parliament, Ms. Merkel expressed no objections to plans by the E.C.B. to buy bonds to hold down borrowing costs for stricken countries, if certain conditions were met.
While her statement left room for interpretation, Ms. Merkel appeared to be showing her openness to such action by the E.C.B. and the euro zone rescue fund, the European Stability Mechanism. A benign attitude toward bond interventions by Ms. Merkel could be significant. Germany has been the main obstacle to efforts to take financial pressure off countries like Spain and Italy, because many Germans believe they would wind up paying for the irresponsible spending behavior of others.
Political leaders have been expressing the same resolve for more than two years, Ms. Merkel said in Ottawa. “European heads of government also feel a duty and have a duty to do everything possible to preserve the common currency,” she said. “In that respect the European Central Bank, despite its independence, is fully following the same line.”
Mr. Draghi’s professed determination to act has helped to restore calm to the fragile nerves of euro zone investors who feared that the problems of Spain and Italy would overwhelm the bloc’s resources.
But there is widespread skepticism over whether Europe can muster the political will to save the euro.
“We have to face openly the possibility of a euro breakup,” Erkki Tuomioja, Finland’s foreign minister, told The Daily Telegraph in an interview published Friday in Britain.
The issue of bailing out weaker euro zone members has been a divisive one in Finnish politics, with one euro-skeptic party, the True Finns, gaining almost one-fifth of the seats in Parliament by virtue of its opposition. While Finland could in theory block new bailout measures, so far officials have been content to criticize anything that smells of a weakening of will on demands for austerity before falling in line with Germany.
“It is not something that anybody — even the True Finns — are advocating in Finland, let alone the government. But we have to be prepared,” said Mr. Tuomioja, a member of the Social Democratic Party, one of six parties in the governing coalition. “Our officials, like everybody else and like every general staff, have some sort of operational plan for any eventuality.
“But let me add that the breakup of the euro does not mean the end of the European Union. It could make the E.U. function better.”
In response, Finland’s European affairs minister, Alexander Stubb, a member of the National Coalition Party of Prime Minister Jyrki Katainen, told Reuters on Friday that Mr. Tuomioja’s “speculation does not reflect the government’s position.” The euro, Mr. Stubb added, is “an economic and political project to which we are 100 percent committed.”
Bond purchases by the E.C.B. have been criticized by the Bundesbank, the German central bank. But Ms. Merkel appeared to take a softer position, noting that the E.C.B. had made it clear it would only buy bonds if political leaders did their part.
This month, Mr. Draghi said the E.C.B. was prepared to intervene in bond markets if the European Stability Mechanism acted first, and if political leaders kept promises to reduce deficit spending, overhaul their economies and build stronger European institutions.
News from Spain on Friday served as a reminder of how the euro zone’s problems continue to grow as economies weaken further. The Bank of Spain said problem loans held by Spanish banks reached record levels in June as the real estate market continued to decline.
Loans classified as nonperforming, meaning those in or near default, made up 9.42 percent of banks’ portfolios in June, up from 8.96 percent in May, the central bank said. In June, Spain was granted a financial-sector bailout of €100 billion, or $124 billion, and is expected to ask for the first disbursement of that aid within weeks.
But the property sector, which boomed during the years of easy credit, has much further to fall, analysts say, boding poorly for the banks’ near-term prospects.
Nytimes.com
David Jolly reported from Paris.
