Tue, Aug 23, 2011 - Page 10 News List

Merkel renews rejection of eurobonds

WHO SHOULD PAY?Advocates of eurobonds say the financial instrument would solve the debt crisis, while critics say it would unfairly raise costs in solid countries

AP and Reuters, BERLIN and BEIJING

German Chancellor Angela Merkel said on Sunday that eurozone-wide government bonds would not solve the current debt crisis, adding that she saw no sign of a new recession in her own country — Europe’s biggest economy.

Financially solid Germany’s government has led opposition to “eurobonds,” viewed by some as a logical solution to the debt crisis that has pushed up troubled countries’ borrowing costs.

Their rejection last week by Merkel and French President Nicolas Sarkozy has not stopped advocates — in Germany’s opposition and elsewhere in Europe — pushing for them. Critics say they would raise costs unfairly for solid countries and could even deepen debt troubles.

“Solving the current crisis will not be possible with eurobonds, and so eurobonds are not the answer,” Merkel said in an interview with ZDF TV.

She added that she did not know whether things might change “in the distant future, but at this point ... eurobonds are exactly the wrong answer — they would lead us into a union of debt and not into a union of stability.”

Merkel insisted that “every country must attend to reducing its own debt” and pointed to possible legal issues with eurobonds: a need for European treaty changes that could “take years” and to address whether they would be compatible with Germany’s Constitution.

“Politicians cannot and will not simply follow the markets,” Merkel said. “The markets want to force certain things; we will not do that. Politicians must instead ensure that we make ourselves unassailable.”

Merkel’s junior coalition partner, the Free Democratic Party of German Vice Chancellor Philipp Roesler, has been particularly keen to stiffen the government’s resistance to eurobonds. Roesler said over the weekend that he rules out their introduction by the -current center-right coalition.

Dutch Minister of Finance Jan Kees de Jager also said he expected Berlin to hold firm.

“Eurobonds are not the solution,” de Jager was quoted as telling German weekly Der Spiegel, arguing that they would remove any incentive for troubled countries to get their budgets and economies in order, and “induce governments to run up more debts instead of saving.”

“I call that perverse,” he said.

Spectacular German growth has been key to respectable eurozone figures over the past year-and-a-half. Merkel said she expected the economy to continue improving, despite a decline in German growth from 1.3 percent in the first quarter to an unexpectedly weak 0.1 percent in the second.

The economy is ahead of last year’s forecasts and “the labor market situation is developing well, so I think we have the opportunity to continue with an upswing,” the chancellor said. “I see nothing that points to a recession in Germany.”

Meanwhile, China’s top official newspaper said yesterday that the “Black Death” of debt crisis across the eurozone would hurt China by sapping demand for exports, although Beijing’s relatively small holdings of euro assets will limit any damage to foreign exchange reserves.

The bleak diagnosis for the euro’s prospects appeared in the overseas edition of the People’s Daily in a commentary by Zhang Zhixiang (張之驤), a former head of the People’s Bank of China international department, and Zhang Chao (張超), an economist for the state-owned China Development Bank (國家開發銀行).

Although the commentary in the People’s Daily does not reflect a definitive view from China’s top leaders, it suggests that the eurozone’s successive crises have stirred anxiety and debate in Beijing about the impact on China.

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