Juncker and Merkel clash over collective borrowing
The head of the eurozone group of finance ministers clashed openly with the German chancellor yesterday on the issue of whether some government borrowing should be done on a collective eurozone basis.
Luxembourg Prime Minister Jean-Claude Juncker said Germany rejected his proposal to create euro-region bonds too quickly and has shown "simple" thinking on the matter, the German newspaper, 'Die Zeit', reported.
"Germany is dealing with European matters in an un-European way," Mr Juncker reportedly said.
The bond proposal was dismissed before Berlin had examined it properly, the newspaper reported Mr Junker as saying in a preview of an article that will appear in the next edition.
Chancellor Angela Merkel called for calm in the argument, saying the debate over steps to resolve the debt crisis should be conducted "quietly and in a goal-oriented fashion".
But she reiterated her opposition to proposals for euro-area bonds. Such bonds would have the backing of all 16 member states and could command lower interest rates than those available to high deficit countries like Ireland or Greece.
Issuing joint bonds, would, in the first instance, "fail to provide the right impulse economically", Ms Merkel told reporters.
"Secondly, in our assessment it's not at all compatible with current EU treaties," she said.
Speaking at a joint press briefing with Sweden's prime minister, Fredrik Reinfeldt, Ms Merkel repeated that it was important to "involve investors" in any future sovereign debt crisis after 2013. Mr Reinfeldt backed her, saying that treaty changes were needed to include investor participation.
Ms Merkel faced criticism from, among others, ECB president Jean-Claude Trichet, for alarming bond markets with her insistence that lenders accept losses when a country needs a financial bailout.
Mr Juncker said German criticism that euro-region bonds would lead to a single-market interest rate was incorrect.
"We would bundle a part of the national debt at European level and service it with euro bonds," he was cited as saying, but most debts would be paid off at national interest rates."
Support for the creation of eurobonds came from the Association for Financial Markets in Europe, which represents different markets across the continent.
It said they could bring an end to the region's fiscal crisis by deepening market liquidity. "There are significant advantages and it could be a possible solution for the sovereign debt crisis," Sander Schol, a director of the association in London, said.
"The decision to come up with a common bond is a political decision. It's very important that they stay in touch with market participants when formulating the proposals."
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