One of Germany’s leading economic associations came out in favor of joint euro zone bond issuance on Monday, raising pressure on Chancellor Angela Merkel to consider bolder crisis steps ahead of a meeting with the French president.
Until now, the idea of so-called “Eurobonds” has been fiercely opposed by Berlin, which is fearful such a step would push up German borrowing costs and reduce incentives for weaker euro zone members like Greece to reform their economies. A German government spokesman was emphatic — Merkel and France’s Nicolas Sarkozy will not discuss common euro zone issuance in Paris on Tuesday because Berlin does not think it is a good idea. Sarkozy’s office said very much the same. “The German government has said on numerous occasions that it does not believe Eurobonds make sense and that’s why they will not play any role at tomorrow’s meeting,” German spokesman Steffen Seibert said.
But a deepening of the debt crisis over the past weeks, with big member states like Italy, Spain and even France coming under pressure, appears to be convincing some Germans to reconsider this hardline stance, even if top government officials continue to rule it out.
The president of Germany’s BGA export association became the first senior industry head to back the idea, telling Reuters that all other avenues for fighting the crisis had been exhausted.
“What is the alternative?” Anton Boerner said in an interview. “The alternative is the markets attack Italy, then France, we lose our AAA rating and then it’s our turn. This is a downward spiral that would lead to a worldwide depression. “What have we achieved then?” Boerner continued. “We’ll end up paying (for the crisis) three times over. This way we pay just once.”
The head of the center-left Social Democrats, Sigmar Gabriel, has also backed the idea, telling German public television station ARD late on Sunday that euro zone countries should be able to raise 50-60 percent of their funding through such joint issues if they agreed to certain conditions. “States that use Eurobonds would have to agree to give up a degree of sovereignty over their own budgets,” Gabriel said. After unveiling tougher austerity plans in return for European Central Bank help, Italian Economy Minister Giulio Tremonti said a common euro zone bond would stop markets forcing high-debt economies in the bloc to the brink. “We would not have arrived where we are if we had had the euro bond,” he said on Saturday.
GOVERNANCE IN FOCUS:
Merkel and Sarkozy are instead expected to discuss improving economic governance in the euro zone. Officials have suggested they could agree to introduce regular meetings of euro zone leaders — a longstanding French demand — and enlarge the role of European Council President Herman van Rompuy to make him a spokesman for the euro.
These steps could bring greater policy discipline in the 17-nation currency bloc, which has regularly sowed confusion in the markets by talking with disparate voices, but are unlikely to assuage market concerns about the high debt and deficit levels of certain countries in the bloc. Yields on Italian and Spanish bonds fell back to around 5 percent last week after the ECB intervened in the market to support them. The ECB is due to publish data at 1330 GMT detailing how many bonds it bought in the week up to last Wednesday. Both German Finance Minister Wolfgang Schaeuble and Economy Minister Philipp Roesler gave interviews over the weekend in which they spoke out against euro zone bonds and debt collectivization. Conservative German newspaper Die Welt, however, reported that the government was no longer ruling out the idea.
Merkel, whose popularity has sunk to its lowest level in nearly five years according to some recent polls, could face a revolt within her coalition and Germany’s broader economic policy establishment if she agreed to joint bond issuance. Her coalition partners, the Free Democrats (FDP) and the Bavarian Christian Social Union (CSU), are seen as dead-set against the idea.
The leadership of the FDP have set a meeting for Wednesday to discuss their stance on the euro crisis, which will be chaired by Roesler, a party spokesman said. German media reports have said a working group within Merkel’s own Christian Democrats (CDU) has been studying the idea of Eurobonds in greater detail, suggesting some may be open to it. But leading members of the party have ruled it out in clear terms in recent weeks and other northern European member states, such as the Netherlands and Finland are also vehemently opposed.
Boerner of the BGA said, however, that Eurobonds may be the only solution that can prevent the markets from launching new assaults on euro zone members. “We must show the markets that we are ready to use the appropriate tools, and that means Eurobonds signed off by Germany,” said Boerner. “We need Eurobonds with strict conditions attached. We need this and we need it fast.”
