Merkel says eurobonds are 'exactly the wrong answer'


Germany renewed its opposition to growing calls for a move towards bonds that are jointly issued by eurozone members yesterday, with the German Chancellor, Angela Merkel, saying that so-called eurobonds were "exactly the wrong answer" to the currency union's sovereign debt crisis.

The rejection follows a fortnight of turmoil on the world markets, with investors increasingly anxious about what they see as the lack of political will to solve the eurozone debt crisis. Last week also saw the Wall Street investment bank Morgan Stanley highlighting Europe's "slow and insufficient response to the sovereign crisis" as one of the reasons for a downgrade of its economic-growth forecasts.

But Ms Merkel rebuffed the clamour for eurobonds as a solution to the Continent's problems.

"They lead us to a debt union and not a stability union," she told German public television yesterday. Instead, Ms Merkel said Europe needed to move towards more economic co-operation.

"The eurozone has to work even more closely together but we also have to work together closely within the Europe of 27," she said. "Our currency is not substantiated by a political union. Now the task is to make the euro strong through more economic co-operation and, especially, more commitment."

Earlier, her finance minister, Wolfgang Schäuble, had also opposed the idea. Speaking at his ministry's open day on Saturday, Mr Schäuble said: "As long as we don't collectivise financial policy, we also cannot have a uniform interest rate level. The different rate levels are the incentive to run a solid economy or the punishment if you are not running it properly."

Ms Merkel's resistance echoed her stance at talks with the French President, Nicolas Sarkozy, last week.

On the other side of the divide, the Belgian finance minister, Didier Reynders, has backed the call for eurobonds, an idea also supported by his Italian counterpart, Giulio Tremonti, who was one of the first proponents of the idea to issue joint debt.

In addition to concerns about the implied loss of sovereignty, Germany's opposition stems from its fear of the higher interest rates that would land at its door, even as common debt offers some respite to the troubled, debt-laden countries on Europe's southern periphery.

With the political debate still raging, this weekend also saw the head of Germany's second-largest lender call for a European finance minister with authority to member states' budgets.

Writing in the German press, Martin Blessing, the chief executive of Commerzbank, said: "We need a real European finance minister, who is endowed with the appropriate powers. With the introduction of a fiscal union, Brussels should have the right to take budgetary powers from countries that do not stick to the rules."

"It should have the right to levy its own taxes and to set up a common debt agency to issue bonds."

Mr Blessing, whose bank is part-owned by the German government, also said that the measures put forward by Ms Merkel and Mr Sarkozy last week were not enough to solve the bloc's issues.

Among the proposals was a possible EU-wide financial-transaction tax, which has already stoked opposition in London, with Michael Spencer, the chief executive of Icap, the world's biggest interdealer broker, warning that it would "destroy the City and cost the Exchequer billions, but it would benefit Brussels".

"Companies like Icap will simply move elsewhere outside the EU if Nicolas Sarkozy and Angela Merkel push ahead with this silly tax," he told The Independent on Sunday.