CHANCELLOR ANGELA Merkel has revived the debate about euro bonds by refusing to rule out the idea of common euro zone debt entirely, instead dismissing the concept “for the moment”.
Her remark on German television yesterday came as her finance minister, Wolfgang Schäuble, suggested the real cause of recent euro zone turbulence was the lack of political will for closer fiscal union in the bloc.
“The solution to the current crisis will not be possible with euro bonds and this government’s task is to tackle the current crisis,” said Dr Merkel on German public television, adding that each euro zone member must remain responsible for its own sovereign debt.
“Euro bonds are precisely the wrong answer for the moment. They lead to a union of debt rather than a union of stability.”
Last Tuesday in Paris, the German leader appeared to rule out the idea of euro bonds categorically. With her remarks yesterday, she appears to be aligning herself with French president Nicolas Sarkozy who said that euro bonds might come at the end – but not the start – of a period of debt consolidation and fiscal and budgetary integration.
Mr Schäuble said he supported this view in principle, but only if further national sovereignty rights were transferred to Brussels.
His ministry has estimated that euro bonds would cost Germany about €2.5 billion in the first year. Pooling euro zone debt could deprive Germany of its triple-A credit rating and increase borrowing costs by about 0.8 percentage points, according to a leaked internal document.
But collectivising fiscal policy must come as a precursor to any euro bonds, German officials say. The question of euro bonds doesn’t arise for now, Mr Schäuble said, because there was no political appetite for further treaty change needed for common financial policy.
"As finance minister I say it is our task here and now to solve problems as quickly as possible on the basis of existing treaties," he told the Welt am Sonntagnewspaper. "But believe me, the problem is solvable. We had the hope, and still have it today, that the euro would, step by step, bring about political union. That things aren't far on is one of the reasons for the lack of confidence on the markets."
Euro bonds would allow all euro zone members to benefit from a common interest rate. The key to reaching political agreement on the issue, he said, was in member states driving down interest rates on their existing sovereign debt through austerity measures and further pooling of economic competences.
“We will not just defend the European currency come what may, we will develop it further, step by step,” he said.
The interviews come ahead of an emergency meeting of Dr Merkel’s ruling Christian Democratic Union parliamentary party tomorrow. Backbenchers are expected to vent their frustration at the government’s euro zone strategy. “We will have a terrible problem in the CDU if the impression was created that Germany is paying for the debts of others, unconditionally,” said Annegret Kramp-Karrenbauer, state governor of Saarland.
