German chancellor Merkel rules out debt relief for Italy

German chancellor Angela Merkel has ruled out debt relief for Italy, saying in a newspaper interview published on Sunday that the principle of solidarity among euro zone member states should not turn the single currency bloc into a debt-sharing union.

In the interview with the Frankfurter Allgemeine Sonntagszeitung, Ms Merkel also embraced some of French president Emmanuel Macron's ideas for more solidarity in the euro zone and the broader European Union.

She said that while cohesion among members of the single currency bloc was important, “solidarity among euro partners should never lead to a debt union, rather it must be about helping others to help themselves”.

Ms Merkel made the remarks when asked about a media report that Italy's anti-establishment 5-Star Movement and far-right League had planned to ask the European Central Bank to forgive €250 billion of Italian debt.

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An Italian governing coalition of two parties generally seen as hostile to the euro took power on Friday, calming markets that had been spooked by the possibility of a new election that might have effectively become a referendum on whether to leave the single currency.

“I will approach the new Italian government openly and work with it instead of speculating about its intentions,” Ms Merkel told the paper in an interview published on Sunday.

European Monetary Fund

In her most detailed comments on Mr Macron’s vision, Ms Merkel supported the idea of turning the euro zone’s ESM rescue fund into a European Monetary Fund (EMF) with powers to give members hit by sovereign debt troubles short-term credit lines.

Mr Macron wants a future EMF to act as a buffer in any future financial crises in the bloc, which was nearly torn apart in a debt crisis in 2009.

Ms Merkel, who has faced criticism for not responding quickly and clearly to Mr Macron’s proposals made in September, said the bailout fund, known as the European Stability Mechanism, was not sufficient to shield the euro zone from crisis.

The EMF would complement other measures to strengthen the euro, including a banking and capital markets union, she said.

Germany has been demanding clarity on parameters for reducing risks in the banking sector before progress can be made toward completing a banking union through a deposit insurance scheme. Ms Merkel did not say if her concerns had been addressed.

“If the whole euro zone is in danger, the EMF must be able to grant long-term credit in order to help countries,” Ms Merkel told the paper. “Such loans would be spread over 30 years and be conditioned on sweeping structural reforms.”

“In addition, I can imagine the possibility of a credit line that is short-term, five years for example. As such, we would be able to take under our wing countries that get into difficulties because of extraordinary circumstances.”

Her comments were welcomed by the Social Democrats (SPD), junior coalition partners of her conservative bloc in a right-left coalition that took power earlier this year after an election in September.

Austerity

The SPD have been critical of the conservatives’ focus on austerity in the euro zone and had pressed Ms Merkel to engage more actively with Mr Macron on his reform proposals.

Ms Merkel also said that a future EMF would be organised on an intergovernmental basis and national parliaments of member countries would have oversight.

Lawmakers from Ms Merkel’s conservative bloc have been cold to Mr Macron’s proposal, saying they are wary that his call for more solidarity could see German taxpayers’ money used to fund profligate member states.

The chancellor also said she backed an investment budget for the euro zone, which would be in the low two-digit billions of euros that would be introduced step by step and evaluated over time to address structural weaknesses of member states.

On Saturday, Ms Merkel congratulated Italian prime minister Giuseppe Conte in a phone call and invited him for talks in Berlin, her office said.

Mr Conte, a little-known 53-year-old law professor, was sworn in on Friday, ending three months of political deadlock in the wake of inconclusive March 4th elections.

– Reuters