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Debt crisis

August 17, 2011

The expectations were high. But what came out of the mini-summit between the leaders of Germany and France was scarcely reassuring. As Bernd Riegert writes, however, there were grounds for such an outcome.


The leaders of Germany and France represent the two most important economies in the eurozone, the 17-member bloc which uses the euro as its currency. Their words carry weight, and hyper-nervous financial markets were waiting with baited breath leading up to their meeting in Paris.

The two leaders met to devise new measures to build a modicum of trust in European stock markets and demonstrate a sense of leadership in Europe. It came just days after stock markets saw dramatic losses on the back of betting against Spain, Italy and France.

Their meeting, which explicitly should not be understood as a crisis summit, came at an unfortunate time - on Tuesday it was announced that the German economy had lost momentum. The French economy, meanwhile, was stagnating. If the eurozone slips back into recession, the debt crisis will take a turn for the worse.

Bernd Riegert
Deutsche Welle's Bernd RiegertImage: DW

So what could Chancellor Angela Merkel and President Nicolas Sarkozy achieve under such circumstances and high expectations?

Neither was able to offer a panacea, opting rather to repeat their messages following a eurozone summit in late July: The instruments allowing eurozone economies to borrow money to service their debt should be extended and stabilized; national economic and financial policies should be better coordinated; budgets should be consolidated; the 17 euro countries should form a new working group with regular summits and appoint a chairman; and all euro countries should have a legislated debt brake, enshrining balanced budgets in national laws.

Eurobonds a no-go

Both Merkel and Sarkozy rejected introducing eurobonds, which would supersede bonds issued by individual eurozone governments. The French president said such a tool could feasibly be introduced further down the path of European integration - much, much further - but not at this time of crisis. Financial markets will not react favorably to such a clear rejection.

Chancellor Angela Merkel, left, and French President Nicolas Sarkozy
Merkel, left, and Sarkozy both rejected eurobondsImage: picture alliance/dpa

These eurobonds, which the markets allegedly would like to see introduced, will be fiercely discussed in Germany, including within the governing coalition of Merkel's Christian Democrats and the liberal Free Democrats.

The ministers for finance and economics have already both rejected calls for eurobonds coming from the opposition Social Democrats. The experts, meanwhile, have been unable to find consensus on whether eurobonds could actually deal with the debt crisis.

Would they lead to rising costs for Germany, or a real and lasting solution to the eurozone's debt woes? No one can answer this question with absolute certainty.

A somewhat decisive appraisal of eurobonds has come from Germany's leading financial institution, Deutsche Bank, which had a place at the summit table in Brussels in July. The bank's chief economist judged that eurobonds quite simply were not the answer.

Author: Bernd Riegert / dfm
Editor: David Levitz