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Crisis of Confidence in Merkel and Trichet: Analyst

Since the euro zone debt crisis began, disagreements between the German Chancellor and the head of the European Central Bank have hampered attempts to find a lasting solution, analysts have said.

German Chancellor Angela Merkel
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German Chancellor Angela Merkel

One the one hand Angela Merkel has found it incredibly difficult to sell the transfer of German taxes to countries like Greece and has been widely reported to lean towards a solution to the crisis that favors supporting the German banks instead.

Over in Frankfurt at the ECB, Jean-Claude Trichet has been reluctant to allow any solution that could risk a Lehman-like event for the euro zone banking system, making it clear any solution that imposes losses on private investors would be very dangerous.

Until Merkel and Trichet put aside their differences, it will be impossible to find a way of ending the debt crisis, one analyst told CNBC Thursday.

“Our central focus is still on the expected compromise between ECB and Berlin over private sector involvement. There cannot be any lasting solution without agreement between these two most powerful institutions in the euro zone,” Jan Randolph, the head of sovereign risk at IHS Global Insight, said in an interview with CNBC.

Despite fears surrounding contagion to major euro zone economies like Italy, Randolph said the problem remains the continent's policy response.

“What this really is about is a crisis of confidence in the ability of the European policy-makers to get to grips with the debt problem in the periphery," he said. "If the two most powerful European institutions [ECB and the Berlin government] cannot agree on a strategy then there cannot be a lasting solution.”

“This could yet become a crisis of self-fulfilling lack of confidence,” Randolph warned.