Merkel rejects debt sharing as Obama urges end to crisis cloud

German hardened her opposition to joint debt sharing in the euro region as President singled out ’s leaders for not doing enough to stop the financial crisis. With Europe’s debt crisis cited last week for canceled IPOs, weaker-than-expected Chinese manufacturing figures and a rise in the U.S. jobless rate, Merkel rejected joint debt issuance in the 17-nation euro area as a solution, saying “under no circumstances” would she agree to Germany-backed euro bonds.
Now, some “come along and ask for euro bonds, saying all we need are equal interest rates and everything will turn out all right,” Merkel said in a speech to members of her in Berlin today. Instead, what’s needed is an economic overhaul to tackle the lack of competitiveness in Europe, she said. Merkel, the head of Europe’s biggest economy and the largest contributor to bailouts for Greece, and Ireland, is the pivotal player in efforts to resolve the crisis now in its third year. As Spain struggles to avoid becoming the next country to call for a rescue and the euro slides near a three-year low against the dollar, Obama added to pressure from the , and Italy to do more to halt the spread of contagion.

European ‘Cloud’
Obama, speaking at a fundraiser yesterday as he bids for re-election in November, said that a report showing the slowest month of U.S. employment growth in a year was in large part “attributable to Europe and the cloud that’s coming over from the Atlantic.” The “whole world economy has been weakened by it,” he said. “Europe is having a significant crisis in part because they haven’t taken as many of the decisive steps as were needed to deal with the challenge,” he said at a separate event in . The president’s point person for the European crisis, , Treasury undersecretary for international affairs, ended a three-day tour of Europe’s crisis capitals yesterday as work continued on erecting a financial firewall to stem contagion. The European Union is targeting July 9 as the start date for its permanent rescue fund, the 500 billion-euro ($620 billion) European Stability Mechanism, an EU official said.Spanish Storm Brainard held closed-door meetings with government officials in , Madrid, Paris, Frankfurt and Berlin in a week when investors flocked to the perceived safety of German and U.S. bonds. The euro fell to almost a three-year low against the dollar and an 11-year low against the yen as uncertainty over the outcome of Greek elections on June 17 shifted to take in , where Prime Minister ’s government is struggling to shore up banks amid a recession. “The storm hasn’t disappeared but we aren’t going to sink,” Rajoy said in a speech today in Sitges, near Barcelona. “We are not on the edge of a precipice.” Rajoy called on analysts and investors to moderate “irrational” views of Spain’s financial situation, saying that Spain “will emerge from the storm under its own efforts and with the support of our European partners.” Spanish 10-year yields ended the week at 6.51 percent, approaching the 7 percent level that triggered previous euro- area bailouts, though below a euro-era record of 6.78 percent on Nov. 17. ’s equivalent 10-year bund rate was at 1.17 percent after reaching 1.127 percent, the lowest since Bloomberg began collecting the data in 1989. German two-year yields slid below zero for the first time.
Stocks Decline
Irish backing for Europe’s fiscal pact yesterday failed to halt a decline in European stocks for the fourth week in five, with the Index dropping 3.1 percent to 235.09. The benchmark measure has plunged 14 percent from this year’s high on March 16. Merkel lauded Rajoy’s efforts “for the first time to undertake sweeping labor market reforms,” tackle the real- estate crisis and Spanish banks, where she said the situation is “fragile.” “That’s why it’s important to create transparency quickly over what that means for the banks, what the situation is for recapitalization,” she said. Germany and Spain are in close contact over those efforts “as we must tackle the problems of the past and start the future with a clean slate.”

Italian Critics
The German chancellor, who was besieged over her crisis- fighting policy last week by Italian Prime Minister and ECB President , took aim at Italy as she cited a “missed opportunity” offered by the euro’s introduction for Europe to overhaul uncompetitive economies. The cheaper borrowing that came with the euro meant “countries like Italy became virtually on a par with Germany in terms of ,” she said. Now “what we have is a situation that we didn’t want,” Merkel said. “The freedom created by this situation wasn’t exploited to improve long-term competitiveness. Instead, the time was used to spend too much money in consumption and too little time in tackling reforms.” Greece, where the crisis first emerged in late 2009, came back into the spotlight as Moody’s Investors Service lowered the country’s highest possible credit rating yesterday, saying there was an increasing risk the country may exit the euro region. Alexis Tsipras, head of Greece’s biggest anti-bailout party Syriza, appealed to voters to give him the power to start anew by canceling the terms of the country’s international bailout and restore pensions and wages. The domestic pressure facing Merkel on her crisis response was underscored by an editorial in Germany’s best-selling Bild newspaper today, saying that is reaching the endgame as soon as next week, regardless of the election outcome. Greece “is unravelling,” and ever-more aid cannot deliver the new beginning that Greece needs, said Nikolaus Blome, Bild’s chief political columnist. The Greek state “must be rebuilt, like in a developing nation,” he said. “Someone among the euro- zone leaders must finally tell the Greeks the truth: this fresh start can only be achieved with a radical first step. And that means leaving the euro.”