Regulators may push for joint bonds

European Union regulators may push for joint bond sales by euro zone countries to help contain the debt crisis, putting pressure on Germany to drop its opposition.

The European Commission said it may present draft legislation on euro bonds when completing a report on the feasibility of common debt sales. The commission, the EU's regulatory arm in Brussels, earlier this year opposed such a step because of German-led objections.

"The report will, if appropriate, be accompanied by legislative proposals," EU economic and monetary affairs commissioner Olli Rehn said in a written response to a European Parliament question. "These euro securities would aim to strengthen fiscal discipline and increase stability in the euro area through markets." He gave no timetable for either the report or any related draft law.

The idea of jointly sold bonds 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 in AAA rated France last week.

"The idea will not fly politically," Daniel Gros, director of the Centre for European Policy Studies in Brussels, said by telephone. "Why should taxpayers in northern Europe pay for the liabilities of countries in the south? There are also serious economic problems with such a system."

Supporters of euro bonds include southern nations such as Greece and Italy, federalist-leaning Luxembourg and Belgium and leading members of the 27-country European Parliament.

Germany's chancellor Angela Merkel reinforced her opposition to joint euro-area bonds, saying that a "collectivisation" of debt would leave the region's members worse off and setting up a conflict with European Union officials.

Dr Merkel, speaking to members of her Christian Democratic Union in the western state of Lower Saxony onon Friday, reiterated her view that euro bonds won't help bring fiscal discipline to profligate euro states and that it's a political proposal.

"Now comes the answer from the left: euro bonds - a collectivisation of debt, everything in one pot," Dr Merkel said in the city of Hameln. "We don't want that."

Germany, Europe's largest economy, would face extra costs of €47 billion a year through the alignment of interest rates with nations that pay more to borrow, the country's Ifo institute said on August 17th.

"If the debt all goes into the one pot, then you have difficulty figuring out where it all comes from," Dr Merkel said. Spreading risk through the euro area would place Germany on a "slippery slope" where "in the best case" it would be on par with the European average,or, "we all get worse together".

Instead, a European framework needs to be developed in which a regulating body must have a "right to intervene" in order to bring fiscal discipline to failing budgets, she said.

Bloomberg