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15 August 2011

FT: Germany and France rule out eurobonds


Germany and France are ruling out common eurozone bonds to solve the bloc's current debt crisis, in spite of renewed pressure ahead of a meeting of chancellor Angela Merkel and president Nicholas Sarkozy on Tuesday.

Wolfgang Schäuble, German finance minister, made clear in an interview that Berlin remains opposed to such a policy. “I rule out eurobonds for as long as Member States conduct their own financial policies and we need different rates of interest in order that there are possible incentives and sanctions to enforce fiscal solidity”, he said.  Senior French officials also played down speculation that any firm announcement on jointly issued bonds would be issued after meetings when Ms Merkel comes to Paris on Tuesday. “Eurobonds would require a much more determined integration of budgetary policy,”, one said. “We do not have that today. It could be a long-term project, but you cannot have eurobonds and at the same time national economic and budgetary policies.”

For President Sarkozy, still deeply unpopular in the polls and facing a difficult re-election campaign next year, it will be important to come out of Tuesday’s meeting with concrete progress. Mr Sarkozy has already sought to reassure markets – and his German partners – on France’s determination to get public spending under control after last week demanding that his government come up with new deficit reduction measures by this week. There was speculation at the weekend that Ms Merkel and Mr Sarkozy could even announce some new measures for further fiscal cooperation between their two countries. But officials close to the German chancellor caution against expecting any major initiative from the talks. They insist that the meeting will focus on proposals for long-term reforms of eurozone governance, and not on short-term measures to calm the markets. “We have promised to table proposals for long-term improvements in governance in October”, a senior official said. Ms Merkel’s difficulty is that there is already strong resistance in Germany to July’s new eurozone crisis measures. A vote on the package is due to be held in the German parliament on September 23.

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