Eurobonds plan sparks new EU storm

 

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The Independent Online

Treaty-changing plans for eurobonds as a way out of the economic crisis kicked off a new political storm today.

German Chancellor Angela Merkel insisted that ambitious European Commission ideas in a green paper offered the wrong remedy at the wrong time and made clear she would not support them.

Dutch finance minister Jan Kees De Jager said eurobonds were no magic solution to the crisis "and could even worsen it".

He and Ms Merkel both said the focus should be on better supervision and enforcement of eurozone budget discipline - something the commission also proposed today.

A package of monitoring measures extends tighter controls announced earlier this year to impose tougher reporting requirements between eurozone treasuries and Brussels - and all euro area governments would have to put in place "independent fiscal councils", as well as basing their budgets on "independent forecasts".

The UK Government kept out of the eurobonds exchanges today but a spokesman said: "We've been clear that the eurozone has to face up to its responsibilities and that both the individual members of the eurozone and the institutions of the eurozone need to find a sustainable solution to the current crisis, but it is not for us to dictate how they do this."

UK Independence Party leader and MEP Nigel Farage was more outspoken.

"The Eurobond proposal would render all future general elections within the eurozone totally meaningless," he said.

"However, it is not going to happen because the Germans have said no, and they are in charge. Commission talk about eurobonds is just eurobluster."

The options for euro bonds and the economic governance package both "miss the point", according to Jan Zahradil, leader of the European Conservatives and Reformists group - which includes the UK Tory MEPs - in the European Parliament.

He said further loss of economic sovereignty within the euro area would strengthen the case for non-euro countries such as his own Czech Republic to reconsider their commitment to joining the euro.

"Instead of fiddling with economic governance structures and abstract debates about whether we need 'more Europe', the EU needs to start focusing on the immediate crisis.

"The only solution is the reduction in the size of the eurozone so that some countries can fully restructure their debts."

He added: "The EU is doing what it does best: creating new rules and layers of governance that undermine national sovereignty.

"The eight (EU) countries that are not members of the eurozone but have committed to joining should have the option to rethink their intentions. The Czech Republic did not agree to sign up to a debt union controlled by Brussels, Berlin and Paris."

A Commission official said most of today's plans and ideas could be carried out without changing the EU Treaty - except the "Green Paper" idea of replacing national bond issues withEurobonds. Another option - a mix of Eurobonds and national bonds - would not require Treaty change.

The Commission has chosen to call the bonds "Stability bonds" - in the hope of achieving some of the stability the eurozone is desperately seeking.

European Commission President Jose Manuel Barroso told a press conference: "The crisis has shown that without stronger governance in the euro area it will be difficult, if not impossible, to sustain a common currency."

Now, therefore, is the time to produce eurozone proposals which, he acknowledged, would be "difficult to accept in good times".

In a dig at Germany's outspoken opposition, he went on: "I would like to make an appeal for these discussions to be approached by all parties with an open mind and for them to be free of dogma."

He said eurobonds would be part of the answer to the crisis, helping establish economic governance, discipline and convergence in the euro area.

"Stability bonds will not solve immediate problems, but show to public opinion that we are serious ... implemented in the right way, the joint issuance of debt in the euro area could bring tremendous benefits. It could lead to greater financial integration and to the creation of a much larger and more liquid bond market - comparable to that which exists for United States Treasuries."

On tighter controls on eurozone national budgets, Mr Barroso said: "Under the new rules, the commission will have greater surveillance powers so that we do not face again the situation where failings in one country endanger the stability of the euro area as a whole."

He insisted: "National budgets will of course be prepared by governments and voted on by national parliaments. Parliaments will of course have the final say.

"The difference with the current system is that the commission will have the right to issue an opinion and may request changes. National parliaments will for the first time have the full information on all other countries in the euro area. We must not oppose the national democratic process to the European democratic process. We need both."

Challenged on the democracy of centralising eurozone economic control, Mr Barroso said: "If you want now a more historical remark, to a large extent from Britain, the principle of parliamentary democracy is sacred: if a parliament decides to ratify a treaty giving some powers to common institutions, those institutions are democratically entitled to use that power."

Economic Affairs Commissioner Olli Rehn said there was no single "silver bullet" that would end the crisis.

But the fragmentation and stress of the European sovereign bond had revived interest in jointly issued eurobonds to improve liquidity.

Mr Rehn added: "Thorough political discussion will be needed. Therefore, we now launch a wide consultation, and only after that take stock and decide on the most appropriate way forward."

Conservative MEP Kay Swinburne, the party's spokesman in the European Parliament on economic and monetary affairs, warned that eurobonds could be a disincentive for governments facing economic turmoil to make tough but vital financial decisions.

"The danger is that struggling nations which are currently walking an economic high wire will see the bonds as their safety net. They may just continue taking risks because they believe the more stable economies will catch them when they fall.

"That is not a recipe for stability - it spells more strife, more turmoil, more trouble ahead. Creating more debt is not the way out of a debt crisis."

PA

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