Berlin plays down chances of 'big bang' proposals

GLOBAL FINANCIAL CRISIS:FRENCH AND German leaders meeting today in Paris are expected to present a joint strategy for greater euro zone economic governance.

Berlin officials said yesterday it was unrealistic to expect “big bang” proposals despite a promise from French president Nicolas Sarkozy last week to expect “extremely ambitious proposals”.

“Such a big bang didn’t take place after the July 21st [summit],” said Steffen Seibert, spokesman for Chancellor Angela Merkel. “Instead important steps emerged, the effects of which will unfold. One shouldn’t expect such a big bang from [today’s] meeting either. This is a process, and will remain so.”

German officials dismissed outright growing speculation that Berlin is coming around to the idea of introducing a common eurobond to end euro zone turbulence.

The discussion came as the ECB announced it bought € 22 billion of sovereign bonds in last week’s market intervention.

Dr Merkel is expected to discuss with Mr Sarkozy the proposals from last month’s summit to, pending parliamentary approval, empower the €440 billion European Financial Stability Facility from September and buy sovereign bonds and recapitalise struggling banks.

Other proposals reportedly on the table include a fresh push for a financial transaction tax and a wish for more regular meetings of euro zone leaders.

Speculation in Germany about eurobonds – allowing euro zone members to pool risk and debt financing – has been fuelled by remarks from senior allies of Dr Merkel.

Finance minister Wolfgang Schäuble told Der Spiegel magazine that eurobonds would make no sense until euro zone members pooled economic and fiscal powers.

Yesterday a senior member of Dr Merkel’s Christian Democrats ruled out eurobonds “for now”, adding: “It makes no sense to go around with principles and absolute positions.

“Nobody knew at the beginning of this debate how events would proceed so we should be careful about making categorical decisions on a permanent basis but rather talk about the foreseeable future,” said Peter Altmaier, Christian Democrats deputy parliamentary leader, on national radio.

“For that reason we’re saying that eurobonds are not the right solution for now.”

German officials insist that the appropriate austerity measures in the euro zone, from Greece to Italy, would obviate the need for measures such as eurobonds.

But continued speculation that Berlin may soften its opposition to pooled debt prompted a fall in yields on German 10-year bonds yesterday. Several key German business leaders gave their grudging support to eurobonds yesterday, urging Dr Merkel to do the same.

But her coalition partner warned the German leader about even considering the idea. “This would mean the [loan] interest rate for all would be the same,” said Philip Rösler, head of the Free Democrats.