Business World

Sunday 24 September 2017

Debt Crisis: Merkel warns that shared debt liability within eurozone is ‘wrong’

GERMAN Chancellor Angela Merkel has warned that shared debt liability within the eurozone was "economically wrong" and "counterproductive", in tough comments days ahead of a European Union summit.

At the two-day Brussels summit starting on Thursday leaders are set to discuss a cross-border banking union, closer fiscal integration and the possibility of a debt redemption fund, as part of efforts to tackle a worsening debt crisis.

That is an idea that France, Italy and others have pushed hard for but which Germany's conservative leader opposes.

"When I think of the summit I feel concerned that yet again we will have too much focus on all kinds of ways of sharing debt," Merkel said at a conference in Berlin.

Mutual euro zone bonds or a debt redemption fund were unconstitutional, she said. "I also consider them to be economically wrong and counterproductive," she added.

Earlier on Monday her spokesman said Merkel opposed calls for "easy" solutions to resolve the crisis.

"Our currency union... is clearly in difficulty and the interest rates some countries have to pay are part of that difficulty.

The German government knows this very well and is determined to find a good way out of the crisis," said spokesman Steffen Seibert.

"But the chancellor is worried that just before the European summit people are yet again expressing the wish for supposedly easy solutions, most significantly the wish for shared liability," he told a regular news conference.

"If the German government opposes this, it is on the basis of European law and the German constitution, but also because it is our deepest economic and political conviction that liability and control must always go hand in hand," said Seibert.

Merkel anticipated that Germany, which has seen its borrowing costs fall to record lows during the crisis while those of other countries have spiralled to dangerous heights, would again come under pressure from euro zone peers.

"In Brussels many or even all eyes will be on us once again," Merkel said, but she stressed Germany had to pursue sustainable financial policy.

Germany would immediately support a common bank deposit guarantee, so long as this did not bring shared liability.

© Reuters

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