EU divisions deepen over eurobonds ahead of summit
GERMANY AND France clashed ahead of tomorrow’s EU summit as their divisions deepened over the hotly contested question of jointly issued eurobonds.
Hours after Berlin rejected French demands to put eurobonds on the summit agenda, French finance minister Pierre Moscovici reiterated that the proposal was a “strong idea” and would be on the table in Brussels.
After maiden talks in Berlin with his German counterpart, Mr Moscovici issued a veiled threat to block Wolfgang Schäuble’s nomination to lead the Eurogroup of finance ministers unless Berlin gives ground on new measures to boost economic growth. “There will be a comprehensive solution including the important position of Eurogroup head and there are political issues to be considered,” Mr Moscovici said.
His stance reflects the French view that all outstanding questions in the battle against the debt debacle are interlinked.
The German minister is favourite for the Eurogroup post. Asked whether Paris might block his nomination, Mr Moscovici said there was “nothing personal” in the French position.
Mr Schäuble declined to be drawn and left it to his deputy Steffen Kampeter to dismiss eurobonds as a “prescription at the wrong time with the wrong side effects”. German officials argue that closer economic and fiscal integration is a prerequisite for such bonds, which would enable weakened countries to borrow with the benefit of a common euro zone guarantee.
If introduced now, such bonds would be likely to raise German borrowing costs. Mr Moscovici conceded yesterday that France “can’t force” eurobonds on anyone, and Berlin officials admitted they will “have to give” something else to newly elected president François Hollande.
Discreet talks are under way on the possibility of using the European Stability Mechanism bailout fund to directly rescue banks – another measure resisted by Germany.
Any move to expand the European Stability Mechanism’s mandate in this way would be attractive to the Government, which is trying to reduce the burden on the State from the bailout of Ireland’s banks.
EU leaders aim to agree the broad parameters of a new growth plan tomorrow with a view to finalising the plan next month. “They will be discussing the substance, not the legal form,” a senior European source said.
European Council president Hermann Van Rompuy urged an “open and frank exchange” to move “efficiently and constructively towards a credible package in June”. In a letter to EU leaders, he argued “there should be no taboos concerning the longer term perspective”.
At issue are plans to boost the capital of the European Investment Bank and to develop EU project bonds to stimulate infrastructure investment.
Also on the table is reform of Europe’s structural fund scheme, a financial transaction tax and measures to improve the recognition of professional qualifications between member states, which are divided over many of these ideas, with Britain and Sweden resisting moves to boost the European Investment Bank.
Mr Van Rompuy said the financial transaction tax was a “difficult issue”.
Ireland fears British opposition to such a tax could see it introduced on a euro zone basis only, potentially putting the IFSC financial market at a disadvantage to the City of London.
Central Bank governor Patrick Honohan expressed disappointment at unfavourably high Irish bond yield levels but said it would be a “huge leap” to infer this meant the country would require a second bailout.
Referring to the debt crisis, he blamed the high bond yields in part on “very substantial external circumstances” and market conditions for countries with heavy debts.
He declined to say what would happen if Ireland could not re-enter the bond markets as planned before the end of the programme in 2013.