Chancellor Angela Merkel's government dug in its heels Monday against growing French and European Union pressure for eurozone governments to jointly borrow money on financial markets.
Confirming that the issue would come up for discussion at a
special EU summit dinner on Wednesday, Merkel's deputy spokesman
Georg Streiter said in Berlin, "(Our) position has not changed."
The new French president, Francois Hollande, was elected promising
so-called eurobonds, which would average out the wide differences in
euro interest rates. Speaking after the G8 summit on the weekend, he
confirmed that he would propose them on Wednesday.
Streiter said Hollande and Merkel "agreed that everything would be
put on the table," while stressing that eurobonds would not solve the
sovereign debt crisis in the eurozone.
Berlin objects to the idea with the argument that high market
interest rates help to punish governments that block reforms.
Steffen Kampeter, a Christian Democratic (CDU) legislator and
junior finance minister, told Deutschlandfunk public radio,
"Eurobonds at this point in time would indicate interest rates that
are too low and remove pressure from European economies to adjust."
Merkel's junior coalition party also flatly rejected the idea.
"Joint debt and a joint level of interest would be harmful," said
Patrick Doering, general secretary of the Free Democratic Party
(FDP). He said he was confident the German chancellor would not yield
on the topic.
But in Brussels, EU officials insisted that eurobonds would a good
idea, under the right conditions.
"From an economic point of view this make sense, but at the end of
the day this is a political decision," said Amadeu Altafaj, spokesman
for EU Economy Commissioner Olli Rehn.
In a parallel move, EU President Herman Van Rompuy urged invitees
to Wednesday's summit not to shy away from discussing "innovative, or
even controversial, ideas."
"In this context, I also believe that there should be no taboos
concerning the longer term perspective," he wrote, in a coded
reference to eurobonds.
In a nod to German concerns, Amadeu stated that tighter policing
of deficits, in order to prevent any free-riding on cheaper debt
issuances, was "a prerequisite" for their introduction.
A German-sponsored budget discipline treaty known as the fiscal
compact, which Hollande wants to renegotiate and most EU countries
still have to ratify, would be "a major development" on the road
towards eurobonds, Amadeu indicated.
Approval of the so-called "two-pack" - a set of draft regulation
giving the commission more oversight over national budgets in the
eurozone - would also help, the spokesman suggested.
Merkel is due back in Berlin on Tuesday from US-hosted G8 and NATO
summits.
Streiter said that after attending the EU talks on Wednesday, she
would meet with opposition parties to negotiate terms for the German
passage of the fiscal compact.
Heads of the Social Democratic (SDP), Green and Left parties will
attend the Thursday talks.
The fiscal compact effectively changes the German constitution,
meaning two-thirds of both chambers of parliament must vote for it.
Merkel has urged passage before parliament begins its summer break in
early July.
Opposition parties, who are seeking concessions as the price of
their assent, have demanded more time.
Last week, the SPD leadership called on the German government to
support so-called project bonds, an EU proposal which would raise
capital for specific infrastructure projects.
They are seen as an intermediate step towards the full eurobonds
which leftists in the party have been advocating.
