WSJ: Pressure on Merkel amplifies

23 November 2011

German Chancellor Angela Merkel faces growing calls to soften her resistance to a potentially powerful weapon in Europe's debt crisis: eurozone bonds that would raise appeal for investors but make each euro member liable for the debts of the others in the currency club.

Ms Merkel stressed that joint debt issuance isn't the right response now. "The discussion of eurobonds in the midst of the crisis is inappropriate", she said. Germany has never categorically ruled out the joint issuance of bonds by the euro's 17 national governments, known as eurobonds. But Berlin insists that before euro members collectively raise financing on the open market, they must create rules that force each country to exercise fiscal discipline.

"It is clear that any type of eurobonds would have to go in parallel, hand in hand, with a substantially reinforced fiscal surveillance and policy coordination as an essential counterpart", said Olli Rehn, the European Commissioner for Monetary Affairs. Germany hasn't signalled it is ready to accept eurobonds in the near term in return for such budget controls. Collective borrowing would likely increase Germany's cost of servicing its public debt.

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