Bundesbank backs Berlin opposition to French plans

GROWTH PROPOSALS:CHANCELLOR ANGELA Merkel has knocked back French ambitions for eurobonds and fresh euro zone growth measures, calling on European leaders to complete first the projects already on the table.

The Bundesbank gave its backing to Dr Merkel’s tough line on Greece yesterday, saying a Greek exit from the euro zone brought “considerable . . . but manageable” risks.

“We want to complete what we began in the last two summits: growth perspectives for the European Union and for the whole euro zone,” said Dr Merkel on her way in to yesterday’s informal summit dinner.

Ahead of the meeting, German officials insisted the priority was to implement growth instruments already agreed before starting on France’s summit wish list, topped by jointly issued sovereign bonds.

The German leader put up two hurdles to eurobonds: a legal one in Brussels and a political one in Berlin. “I would point to the legal position: the treaties forbid assuming of mutual liability which, in our view, includes eurobonds,” she said.

Mindful of her voters back home, who are wary of being asked to shoulder additional bailout burdens, she added: “I do not think [eurobonds] make any contribution to promoting growth in the euro zone.”

“The very similar interest rates we had in recent years lead to serious financial aberrations. I will point this out this evening.”

Berlin has insisted it will block any debt-financed measures and has demanded François Hollande stick by measures agreed before his presidential election victory.

Dr Merkel said she would push for “increased involvement” of the European Investment Bank in stimulating business activity and greater co-operation between European labour agencies to match job-seekers in one European country with vacancies in others

On Greece, the German leader went into yesterday’s talks with the backing of the Bundesbank. It called on Athens to implement the agreed EU/IMF/ECB programme or “call into question future financing” – a decision for which it alone would “carry the consequences”.

In its monthly report the German central bank said a Greek exit was preferable to an “appreciable watering-down of agreed measures”.

“This would damage the trust and treaties of the euro area and weaken considerably the compulsion for self-dependent reform and consolidation efforts.”

After yesterday’s encounter with Mr Hollande’s growth agenda, the German leader faces a second challenge today in Berlin when she meets opposition leaders in a final bid to secure a speedy ratification of the fiscal treaty.

The chancellor needs a two-thirds majority in both houses of parliament to ratify the treaty as well as the ESM bailout fund.

But officials in both the Social Democratic Party (SPD) and Greens indicated yesterday that they would block until the autumn the fiscal treaty vote, originally planned for tomorrow, until they see concrete EU growth proposals.

With their blockade the opposition hopes to stymie Dr Merkel’s demand for a joint fiscal treaty- ESM vote, a strategy intended to quell rebellion against the unpopular bailout fund in the government’s own ranks.

An opinion poll yesterday put an SPD-Green coalition four points ahead of Dr Merkel’s governing coalition.