Euro could collapse without progress on fiscal union, says Commerzbank

GERMAN REACTION:THE EURO could collapse without more progress towards fiscal union within the euro zone, the head of Germany's Commerzbank warned yesterday, as pressure increased to recapitalise the bank sector and restore confidence.

Euro zone politicians have bought time by setting up the European Financial Stability Facility (EFSF) rescue fund, but they had so far failed to find a path out of the region’s debt crisis and investors needed answers, Martin Blessing said.

“I believe we have reached a crossroads,” the CEO of Germany’s second biggest bank said. “A monetary union without a fiscal union, this construct has failed.” Signs of stress across the banking industry continued to build, putting renewed pressure on the share prices of France’s BNP Paribas and Sociéte Générale .

The EFSF could inject up to €230 billion of capital into Europe’s banks to keep them all above a 6 per cent equity capital level even after taking a 50 per cent loss on debt in Spain, Greece, Italy, Ireland and Portugal, analysts at Barclays Capital estimated.

European Commission president Jose Manuel Barroso has meanwhile said policymakers should not rule out issuing joint euro-area bonds and must develop integration tools to make that possible, even if German opposition means it cannot be done immediately.

“The commission believes we should look also at that option,” Mr Barroso said in a Bloomberg interview. “We are not saying it is immediately. This is a matter that must be discussed, but we should not exclude that option either.”

The idea of bonds sold jointly by the euro area’s 17 nations remains alive because unprecedented bailouts by governments and the European Central Bank have failed to stamp out debt concerns that began in Greece almost two years ago and rattled markets.

Mr Barroso said the commission, the European Union’s executive branch, would present euro-bond options “very soon”, reiterating a previously stated time frame. Germany and France have opposed so far joint eurobonds, arguing it could threaten their AAA credit rating.

“Eurobonds is part of the issue, it’s not the panacea,” Mr Barroso said in yesterday’s interview.

He said euro-area members must work to increase economic and fiscal integration to ensure stability. “We have a monetary union, but we have not yet the instruments of a full fiscal economic union. It takes time, yes,” Mr Barroso said. – (Reuters/Bloomberg)