(Source: Alvise Armellini dpa, Hamburg, Germany (MCT) — France’s newly-elected President Francois Hollande was expected to push on the issue of eurobonds, which has put it at loggerheads with Germany, at a European Union summit in Brussels on Wednesday.
Eurobonds – the joint issuance of eurozone debts – would level out differences between low-yield German bonds and high-yield Spanish and Italian ones, making debt servicing more expensive for Berlin but cheaper for Madrid and Rome.
“It would create utterly false incentives. It would not encourage financial discipline, but exactly the opposite, and we’ve had enough of the opposite,” German Finance Minister Wolfgang Schaeuble told Hamburg-based NDR public radio.
But several economists argue that Germany – the strongest euro economy – needs to pay a price to signal its commitment to stand by the currency union, which may come undone if a possible Greek exit ends up economic unrest in other weak euro members.
Amid calls for the European Central Bank to also come to the rescue, its president Mario Draghi was due to take part in a pre-summit teleconference with EU President Herman Van Rompuy, European Commission President Jose Manuel Barroso and Eurogroup chief and Luxembourg Premier Jean-Claude Juncker, EU officials said.
The International Monetary Fund and the Organization for Economic Cooperation and Development have called on the eurozone to move towards debt mutualization and joint guarantees for banks, which are faltering in Spain and Greece.
But German officials have rejected letting the eurozone rescue fund intervene in bank recapitalizations, while talks on creating euro-wide deposit guarantee and bank resolution schemes have gone nowhere. Berlin does not seem amenable to the idea of helping Greece or Spain by giving them more time to meet EU deficit targets either.
Germany prefers fiscal prudence, coupled with structural reforms.
In an attempt to bridge differences, EU Economy Commissioner Olli Rehn said EU leaders should identify the tighter budget rules that would need to precede eurobonds, in order to allay fears that they might encourage reckless spending.
An example would be the fiscal compact, a German-sponsored budget discipline treaty – which Hollande campaigned against, pledging a renegotiation to add more emphasis on growth.
Were the French leader to backtrack on that demand, German Chancellor Angela Merkel could perhaps soften her position on eurobonds.
“(Merkel) hides her cards very carefully. And in the last minute she plays. In the past there were red lines, and gradually they have turned pink and white,” a European diplomat noted.
Van Rompuy has said he wants EU leaders “to prepare politically for decisions” that will be taken at the 27-member bloc’s summit, scheduled for June 28-29. dpa jbp alv bve Author: Alvise Armellini
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Source: Alvise Armellini dpa, Hamburg, Germany (MCT)
