EU divided over euro bonds, no increase in bailout funds | Europe| News and current affairs from around the continent | DW | 06.12.2010
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EU divided over euro bonds, no increase in bailout funds

There was no agreement on plans for joint euro bonds at a meeting of the eurozone finance ministers in Brussels on Monday, where the eurogroup decided against any increase in the rescue fund for debt-saddled countries.

Jean-Claude Juncker

Eurogroup head Juncker has called for joint euro bonds

European ministers took no new steps on extending a eurozone emergency fund on Monday after member states failed to reach agreement on the necessary steps to be taken.

Angela Merkel

Merkel said the EU treaty does not allow for euro bonds

A five-hour meeting of financial ministers from the 16 countries that use the euro concluded that the existing fund was sufficient. There were no official talks on proposals for the introduction of European bonds for sovereign lending, as an alternative to those on individual nations.

"We don't have any new decision to announce to you," Jean-Claude Juncker, the chairman of the Eurogroup, told reporters.

Luxembourg premier Juncker and Italian Finance Minister Giulio Tremonti had raised a new call for the European bonds ahead of the monthly meeting in Brussels.

"Europe must formulate a strong and systemic response to the crisis ... This can be achieved by launching E-bonds, or European sovereign bonds," Juncker, the head of the committee of eurozone finance ministers, and Tremonti wrote in the Financial Times on Monday.

Merkel talks of need for incentives

However, Chancellor Angela Merkel was quick to rebuff the call, saying the EU treaty did not allow for issuing common bonds. Also, she said, joint bonds would reduce competition and the interest rate incentive for fiscal good behavior.

"Interest rates are an incentive to become better and meet the requirements of the Stability and Growth Pact," Merkel added.

German Finance Minister Wolfgang Schaeuble, who on Monday was named Europe's top finance minister by the Financial Times, said creating euro bonds would require "fundamental changes" in the EU treaty, something which is politically immensely difficult.

An Irish euro coin on a map of Ireland

After the rescue plan for Ireland, there are fears that other nations may need help

The idea of a bond issued by the eurozone has been circulating since the euro itself was created. Until now, each country issues its own bonds.

Pressure to raise eurozone fund

Dominique Strauss-Kahn, head of the International Monetary Fund (IMF), was set to call on finance ministers to increase the 750-billion-euro ($1 trillion) bailout fund and urged the European Central Bank (ECB) to step up its purchases of bonds to stem the crisis. Germany, however, has rejected the call.

"I currently see no need to increase the fund," Merkel said on Monday, adding that "a very small percentage" of the fund was needed for Ireland's recent bailout.

Last week, Ireland was offered 85 billion euros from Europe's bailout fund, a rescue mechanism set up after Greece's crisis earlier this year. Analysts warn that Portugal, Spain or Italy could be the next eurozone states in need of assistance.

The possibility of extending the period in which Greece must pay back its 110-billion-euro loan, to a longer timescale as agreed for Ireland, has also been raised.

Euro break-up on the cards?

The market pressure on eurozone sovereign debt has given rise to speculation, mostly in Britain and the United States, that the single currency might break up or that weaker states would be forced to abandon it.

But this move is highly unlikely due to the intertwined nature of the eurozone states, said Ewald Nowotny, a member of the ECB governing council. "Europe has already grown together so much that an amputation would have massive disadvantages for both sides," he added.

Spanish Economy Minister Elena Salgado said increasing the eurozone rescue fund was "not the question at the moment." According to Salgado, Spain's economic fundamentals were sound and the country would not ask for financial support.

Spain so far has raised its tobacco tax, cut down on subsidies for wind power and on Friday approved privatization plans. Portugal, considered the next euro state at risk of a bailout, has resisted any new measures on top of a tough 2011 budget.

Petr Necas

The Czech Republic is not too keen on introducing the euro

Czechs in no hurry to introduce euro

Meanwhile, Czech Prime Minister Petr Necas has said he would not hurry to join the eurozone.

"My government will not fix a date for the adoption of the euro," he said. It would be "a political and economic blunder" to adopt Europe's currency at the moment.

Necas has no plans to introduce the euro during his government's current term which ends in 2014. "Nobody can force us to adopt the euro," he added. The Czech Republic joined the EU in May 2004, but most of its citizens oppose the single currency.

Schaeuble has warned that the risk of an anti-euro political party emerging in Germany should be taken seriously. Since the bailout for heavily indebted Greece, the euro has become unpopular among Germans. But Schaeuble said there is no reason to abandon the currency.

"Without the euro the labor market would look much worse. The euro brought us through the crisis well," Schaeuble said. He also rejected a two-tiered eurozone of more stable and less stable states. "That would be infinitely more expensive than everything we're now doing for the euro," he said.

An EU summit is scheduled for next week where EU leaders are expected to agree on a permanent eurozone rescue mechanism. The current fund expires in 2013.

Author: Sarah Steffen, Richard Connor (dpa, Reuters, AFP)
Editor: Martin Kuebler

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