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Berlin braces against calls for common ‘eurobonds’

Posted by seumasach on August 15, 2011

Deutsche -Welle

15th August, 2011

As eurozone countries scramble to solve the currency bloc’s debt crisis, members of the German government are digging in their heels against calls for common eurozone government bonds.

Speaking to German news magazine Der Spiegel, Finance Minister Wolfgang Schäuble said there would be “no sharing of debts and not an infinite amount of aid [available]” as eurozone leaders worked on strengthening the European Financial Stability Facility (EFSF) to steer the 12-year-old euro out of harm’s way.

French President Nicolas Sarkozy is expected to try to get German Chancellor Angela Merkel on board with the so-called eurobonds when they meet in Paris on Tuesday.

The leaders of the eurozone’s strongest economies are to discuss ways to pull debt-ridden countries like Greece and Italy back from the brink, while staving off fears that France and Germany could lose their top-notch AAA credit ratings under the weight of a troubled eurozone.

Bigger fish to fry

After spending all of 2010 and the first half of this year in a struggle to rescue Greece, Ireland and Portugal, the eurozone now faces much greater challenges: the major economies of Spain, Italy and even France have come under attack from the markets.

Italian Finance Minister Giulio Tremonti has blamed Italy’s financial troubles on a lack of eurobonds, telling reporters: “If we had eurobonds, we would not be where we are today.”

Germany’s Welt am Sonntag newspaper meanwhile reported Sunday that Berlin was no longer dead-set against the idea of eurozone states backing each other’s debt.

Schäuble, for one, often referred to as the “last European” in Merkel’s cabinet, appeared receptive to the idea, but urged caution about its implementation in the near future.

“When we created the euro we were not able to simultaneously create a political union. People were not ready,” said.

“In the intervening time, the acceptance to go in this direction has increased,” Schäuble told Der Spiegel, but “it is a process and often a slow and difficult one.”

More costs for Germany

But other voices from within Merkel’s coalition government have issued stronger warnings against reforming the bloc’s structures, emphasizing that common bonds would mean higher interest rates for Germany.

Economy Minister Philipp Rösler told business newspaper Handelsblatt that eurobonds would “reward countries with unsound budgetary policies and adversely affect those that consolidate their budgets responsibly.”

“In a Europe where each member state is supposed to take responsibility for itself, I feel that a common eurobond is the wrong approach,” said Rösler, adding that the eurozone had to “set incentives for sound budgetary policies to be enacted in all eurozone member states.”

Currently, the eurozone’s 17 member nations sell their own government bonds independently. Countries with more stable economies offer lower interest rates to lenders than countries considered risky investments.

Meanwhile, World Bank chief Robert Zoellick on Sunday warned that the eurozone’s sovereign debt issues “could turn out to be the most important” challenge facing the world economy.

“We are in the early moments of a new and different storm. It’s not the same as 2008,” he said in an interview with the Weekend Australian newspaper.

As the storm brews, all eyes remain on Paris. Franco-German initiatives usually set the pace for the eurozone, and France has long been demanding relatively minor reforms such as regular meetings between eurozone leaders.

Merkel and Sarkozy are approaching Tuesday’s meeting from very different angles: Merkel is under pressure from Berlin to resist any drastic measures that could threaten Germany’s touted stability, while Sarkozy – facing popularity rates near rock bottom and battered French bank stocks – must produce dramatic results in order to regain Paris’ confidence.

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