Merkel says she will not barter on eurobonds

Fri, Dec 2, 2011, 00:00

GERMAN CHANCELLOR Angela Merkel has hardened her political line ahead of next week’s EU summit, insisting she wants treaty change to reform budgetary rules and will not “barter” on so-called eurobonds.

Dr Merkel will preview Franco-German reform proposals in a Bundestag speech this morning, making the case for binding budgetary rules to rebuild market confidence in the single currency.

“I and the rest of the government find eurobonds the wrong method in this stage of European development, even damaging,” said Dr Merkel in a newspaper interview appearing this morning.

Despite her public remarks, expectations are building in Berlin that the German leader is ready to compromise at next week’s summit. She has already signalled opening a reform deal for euro zone members to non-euro countries.

Dr Merkel told backbenchers in Berlin that agreement on treaty change to allow budgetary supervision from Brussels was “urgently necessary” if leaders hoped to restore market confidence in the euro zone.

She dismissed backbencher fears that she would do a deal in Brussels and agree to eurobonds, saying pooled sovereign debt could only come “on some distant day”.

A “barter approach … is not what I think is right”, she told a parliamentary party meeting, according to one attendee.

Amid growing reports of a summit compromise, German officials said yesterday that Berlin and Paris are open to the idea of bringing in Poland, Sweden and other non-euro members to any final reform agreement. These countries, bound by treaty to adopt the euro in the future, have expressed concern at being left outside the door when euro zone 17 negotiate reform proposals.

Inviting these countries to participate would “be an important signal of inclusiveness”, according to an internal government document seen by Die Zeit weekly.

Berlin favours this approach as it would leave the UK, thanks to its euro opt-out, outside the door and limit its ability to “instrumentalise this [non-euro] group against the euro zone”.

Dr Merkel won an important ally for her cause when Polish prime minister Donald Tusk said yesterday that he favoured limited treaty change to allow “efficient management in the euro zone”.

In another shift the German leader may back “national redemption funds”, an idea first proposed on Monday by her finance minister Wolfgang Schäuble. The idea is to allow euro zone countries offload excessive debt and access cheaper credit in exchange for agreeing a binding debt repayment plan.

The proposal is a variation of a plan presented last month by Germany’s economic “wise men”, calling for a joint debt redemption scheme at European level.

This model, by which countries would begin fixed debt repayments and access better terms on money markets, was rejected in Berlin as “eurobonds by the back-door”.

Economist Peter Bofinger, one of the “wise men”, has complained that the idea appeared to have vanished into the ether of Berlin. “We don’t do this work for our own amusement,” he said yesterday.

But fellow “wise man” Prof Lars Feld said he notices similarities between the “national redemption” plan and their own proposal.

“I think the government is trying to find out what possibilities exist without a prolonged ratification process because they know the crisis won’t wait,” said Prof Feld. Any redemption plan at national level would only have the desired effect with the right balance of economic firepower and limited liability.

“Individual national funds would not require a change of the Lisbon Treaty as countries would individually sign up to a multilateral treaty. But the question remains whether liability is pooled or remains separate.”