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| France and Germany at Odds Over Aiding Spain’s Economy | |
| (about 13 hours later) | |
| NICOSIA, Cyprus — A split emerged on Friday between France and Germany over the urgency of supporting the ailing Spanish economy and the scope of banking regulation for euro nations. | NICOSIA, Cyprus — A split emerged on Friday between France and Germany over the urgency of supporting the ailing Spanish economy and the scope of banking regulation for euro nations. |
| The discord threatened to subdue a rare show of optimism in the region’s three-year debt crisis as European finance ministers and international officials began a two-day meeting in Cyprus. | The discord threatened to subdue a rare show of optimism in the region’s three-year debt crisis as European finance ministers and international officials began a two-day meeting in Cyprus. |
| Since the European Central Bank early this month announced a program to buy the short-term debt of financially vulnerable countries, market pressures on countries like Spain have eased significantly. In that sense, the gathering had little of the crisis mood that has surrounded so many of these meetings in recent years. | Since the European Central Bank early this month announced a program to buy the short-term debt of financially vulnerable countries, market pressures on countries like Spain have eased significantly. In that sense, the gathering had little of the crisis mood that has surrounded so many of these meetings in recent years. |
| For once, the finance ministers had the opportunity to consider broader policy goals, like plans for further economic and financial integration of the euro union. | For once, the finance ministers had the opportunity to consider broader policy goals, like plans for further economic and financial integration of the euro union. |
| Still, there were signs of growing tensions between France and Germany, the two countries that often determine how fast Europeans can turn words in action. Although frequent allies in the struggle to keep the euro zone together, they are still feeling out their new relationship since François Hollande became president in May and appointed a new finance minister, Pierre Moscovici. | Still, there were signs of growing tensions between France and Germany, the two countries that often determine how fast Europeans can turn words in action. Although frequent allies in the struggle to keep the euro zone together, they are still feeling out their new relationship since François Hollande became president in May and appointed a new finance minister, Pierre Moscovici. |
| Wolfgang Schäuble, the German finance minister, tempered expectations on Friday that a single banking supervisor for the euro zone would be in place by the year’s end. | Wolfgang Schäuble, the German finance minister, tempered expectations on Friday that a single banking supervisor for the euro zone would be in place by the year’s end. |
| The timing is significant for Spain, because the creation of a single supervisor under the aegis of the European Central Bank is a precondition for allowing money from a new bailout fund, the European Stability Mechanism, to be used to support banks directly, a longstanding request of Spain. | The timing is significant for Spain, because the creation of a single supervisor under the aegis of the European Central Bank is a precondition for allowing money from a new bailout fund, the European Stability Mechanism, to be used to support banks directly, a longstanding request of Spain. |
| The Spanish banking system is in desperate need of rescue loans from Europe that were agreed to in June. | The Spanish banking system is in desperate need of rescue loans from Europe that were agreed to in June. |
| But the country has been reluctant to begin receiving it unless the money goes directly to the banks and does not get counted as an addition to the Madrid government’s own staggering debt load. | But the country has been reluctant to begin receiving it unless the money goes directly to the banks and does not get counted as an addition to the Madrid government’s own staggering debt load. |
| “My concern is always that there is the risk to raise expectations with financial market participants that can’t be fulfilled later,” Mr. Schäuble said Friday. “I don’t see the possibility of a direct bank capitalization from the European Stability Mechanism as of Jan. 1.” | “My concern is always that there is the risk to raise expectations with financial market participants that can’t be fulfilled later,” Mr. Schäuble said Friday. “I don’t see the possibility of a direct bank capitalization from the European Stability Mechanism as of Jan. 1.” |
| The European Commission on Wednesday detailed the broad outlines of a new banking supervisor for the euro zone. But there is disagreement over the size of that supervisor’s purview — whether it should oversee all 6,000 or so European banks, or only the largest ones that can have the biggest effect on the financial markets. | The European Commission on Wednesday detailed the broad outlines of a new banking supervisor for the euro zone. But there is disagreement over the size of that supervisor’s purview — whether it should oversee all 6,000 or so European banks, or only the largest ones that can have the biggest effect on the financial markets. |
| Leading German officials including Chancellor Angela Merkel have said it is unrealistic to expect the central bank to be able to oversee 6,000 banks effectively, as the plan proposes, because regulators would be spread too thin. Extending the system to all euro zone banks would also lead to greater scrutiny of Germany’s politically important smaller regional and local institutions — unwelcome scrutiny in many Germans’ view. | Leading German officials including Chancellor Angela Merkel have said it is unrealistic to expect the central bank to be able to oversee 6,000 banks effectively, as the plan proposes, because regulators would be spread too thin. Extending the system to all euro zone banks would also lead to greater scrutiny of Germany’s politically important smaller regional and local institutions — unwelcome scrutiny in many Germans’ view. |
| Mr. Schäuble also discouraged Spain from seeking any fuller form of international assistance, saying in an interview with Bloomberg News on Thursday that such a request risked a new round of financial market turmoil. | Mr. Schäuble also discouraged Spain from seeking any fuller form of international assistance, saying in an interview with Bloomberg News on Thursday that such a request risked a new round of financial market turmoil. |
| But his French counterpart, Mr. Moscovici, took the opposite approach at a news conference here Friday. He said that Europe’s plans for a single bank supervisor were well advanced and that direct infusions of money from the bailout fund to euro zone banks should be able to proceed soon. | But his French counterpart, Mr. Moscovici, took the opposite approach at a news conference here Friday. He said that Europe’s plans for a single bank supervisor were well advanced and that direct infusions of money from the bailout fund to euro zone banks should be able to proceed soon. |
| In a remark apparently aimed at Mr. Schäuble, Mr. Moscovici said the crisis had an effect “on everyone, even Germany, which is today experiencing an economic slowdown.” | In a remark apparently aimed at Mr. Schäuble, Mr. Moscovici said the crisis had an effect “on everyone, even Germany, which is today experiencing an economic slowdown.” |
| Mr. Moscovici also suggested that the Spanish government itself could probably seek some form of outside aid to forestall any worsening of its debt crisis. “We have all the tools now to put into force the appropriate decisions to deal with the Spanish situation,” he said. | Mr. Moscovici also suggested that the Spanish government itself could probably seek some form of outside aid to forestall any worsening of its debt crisis. “We have all the tools now to put into force the appropriate decisions to deal with the Spanish situation,” he said. |
| German officials have emphasized a different approach, saying continued economic overhauls in Spain might help keep a lid the country’s borrowing costs without the need for outside aid. | German officials have emphasized a different approach, saying continued economic overhauls in Spain might help keep a lid the country’s borrowing costs without the need for outside aid. |
| “If they say they don’t need a program, then I trust their words,” a German official said on Friday, referring to the Spanish authorities. The official spoke on the condition of anonymity because the negotiations between ministers were private. | “If they say they don’t need a program, then I trust their words,” a German official said on Friday, referring to the Spanish authorities. The official spoke on the condition of anonymity because the negotiations between ministers were private. |
| Germany’s show of caution could partly be tactical, analysts said. | Germany’s show of caution could partly be tactical, analysts said. |
| “We suspect domestic politics may have been partly behind this move,” Evelyn Herrmann, a European economist at BNP Paribas, wrote in a briefing note on Friday. “A new program for Spain would require a new round of parliamentary approval in Germany,” she wrote, and “it might prove quite challenging to achieve a clear majority for a full Spanish bailout within the ruling coalition.” | “We suspect domestic politics may have been partly behind this move,” Evelyn Herrmann, a European economist at BNP Paribas, wrote in a briefing note on Friday. “A new program for Spain would require a new round of parliamentary approval in Germany,” she wrote, and “it might prove quite challenging to achieve a clear majority for a full Spanish bailout within the ruling coalition.” |
| Despite the disagreement between Mr. Schäuble and Mr. Moscovici, there was a general spirit of elation at the meeting about the reduction in borrowing costs in Spain and Italy in recent days. | Despite the disagreement between Mr. Schäuble and Mr. Moscovici, there was a general spirit of elation at the meeting about the reduction in borrowing costs in Spain and Italy in recent days. |
| On Friday, the interest rate on Spain’s 10-year bonds was 5.73 percent — compared with 7.5 percent at its most recent peak in late July. Italy’s 10-year bond was at 4.99 percent, down from a peak of 6.5 percent in late July. | On Friday, the interest rate on Spain’s 10-year bonds was 5.73 percent — compared with 7.5 percent at its most recent peak in late July. Italy’s 10-year bond was at 4.99 percent, down from a peak of 6.5 percent in late July. |
| “If we continue going this way, one has to be optimistic,” said Mario Draghi, the president of the European Central Bank, referring to improved market conditions. Countries had also made “significant progress,” he said at a news conference here. | “If we continue going this way, one has to be optimistic,” said Mario Draghi, the president of the European Central Bank, referring to improved market conditions. Countries had also made “significant progress,” he said at a news conference here. |
| Christine Lagarde, the managing director of the International Monetary Fund, who is also at the meeting, said she hoped that “momentum, which is clearly positive, will be maintained in order to take stock and consolidate the gains that have been recently seen on the markets.” | Christine Lagarde, the managing director of the International Monetary Fund, who is also at the meeting, said she hoped that “momentum, which is clearly positive, will be maintained in order to take stock and consolidate the gains that have been recently seen on the markets.” |
| The I.M.F. is part of the so-called troika of international lenders to Greece, which currently has a team of examiners in Athens trying to determine whether the Greek government has taken sufficient budget-cutting steps to merit its next installment of bailout loans. Ms. Lagarde said Friday that Greece could be allowed more time to trim its budget. | The I.M.F. is part of the so-called troika of international lenders to Greece, which currently has a team of examiners in Athens trying to determine whether the Greek government has taken sufficient budget-cutting steps to merit its next installment of bailout loans. Ms. Lagarde said Friday that Greece could be allowed more time to trim its budget. |