THE EUROPEAN Commission faces a tough sell in Germany as it advances long-awaited plans for a “eurobond” system for countries in the single currency to issue debt with a common euro zone guarantee.
Even before the commission unveils its proposals tomorrow, Berlin’s response to the initiative has been as swift and dismissive as always.
“The chancellor and the federal government do not share the belief of many that eurobonds would be a cure-all for the crisis,” said Steffen Seibert, government spokesman.
“Rather, they see the danger that such eurobonds would distract from getting to the root of the problem.”
With opposition seen across the board in Angela Merkel’s coalition, the initiative reflects concern in Europe that the authorities are running out of options to tame the expanding debt crisis.
The commission’s proposal comes as the emergency worsens rapidly, with the triple-A credit rating of France under pressure, and Italy and Spain in the grip of constant market pressure.
It sets out three different models for the introduction of a form of debt it describes as a “stability bond” instead of the “eurobond” which is routinely rejected in Germany.
The first idea is to issue bonds with joint and several guarantees, which means euro zone countries become jointly liable for their share of the guarantee on each others’ debt and the guarantees of other countries.
The second option for a partial common guarantee on member state debt follows a plan from the Bruegel think-tank in Brussels and a panel of German experts.
This system would be designed to give an incentive to countries to stay within the 60 per cent of debt/GDP limit in the EU treaty by enabling them to issue eurobonds up to that limit while taking sole responsibility for their own debt issuance above it.
The third option embraces a system in which debt would be backed by several but not joint guarantees. In this scheme, each guaranteeing country would be liable only for its share of liabilities under the bond according to a specific contribution key.
While making it clear that an appreciable toughening of budget oversight would be required to ensure the system works, the commission’s paper says the initiative could “possibly” provide the necessary resources to stem the crisis.
“A significant number of political figures, market analysts and academics have promoted the idea of common issuance as a potentially powerful instrument to address liquidity constraints in several euro-area member states,” say drafts of its paper.
“Stability bonds would provide all participating member states with secure access to refinancing, preventing a sudden loss of market access due to unwarranted risk aversion and/or herd behaviour among investors.
“Accordingly, stability bonds would help to smooth market volatility and reduce or eliminate the need for costly support and rescue measures for member states temporarily excluded from market financing.” To create the conditions for such an initiative, the commission calls for an immediate and decisive advance in the process of economic, financial and political integration within the euro area.
Although Germany’s objections are clear, such moves to toughen EU budgetary oversight are seen as an effort to prepare the ground for Berlin to change its attitude.
Still, the tone of objection in the leadership of the Bavarian wing of the German government was particularly strong. “ Barroso cannot be allowed [to] become the henchman of countries who can think of nothing else but how they can use eurobonds to get at German taxpayers’ money,” said the Christian Social Union.
The pro-business Free Democrats were equally dismissive, though slightly more diplomatic, describing the commission’s proposal as a “retrograde” discussion.
“This would lead to rising interest for German [credit], something that cannot be in our interest,” said party leader Philip Rösler.
