Merkel knocks eurobonds as way out of crisis
Published 15/09/2011 | 13:02
German Chancellor Angela Merkel has rejected the idea of eurobonds as a way to steer out of the debt crisis.
The issuance of the bonds would mean that countries like Ireland would not have to issue individual bonds as is the case currently and would arguably make it easier to return to international markets to borrow.
But the move would prove expensive for richer countries like Finland and German.
“Eurobonds are absolutely wrong,” Ms Merkel said.
"In order to bring about common interest rates, you need similar competitiveness levels, similar budget situations. You don't get them by collectivizing debts," she said in a speech at the Frankfurt auto show.
Her comments came just a day after European Commission President Jose Manuel Barroso re-floated the idea of eurobonds bonds as a way to improve Europe’s debts with Greece on the verge of bankruptcy and fears for other big economies like Italy and Spain.
There was good demand for Spainish and French bonds today but the move was costly for Madrid.
Ms Merkel, who is facing public opposition to eurozone bailouts, said there was no quick and easy way out of the debt crisis.
While many investors believe eurobonds are good idea, others say they are an incentive for debt ridden countries like Greece and Italy not to fix their public finances.
European Central Bank policymaker Lorenzo Bini Smaghi also raised that risk today.
"Without stringent constraints, eurobonds risk favoring fiscal policies that, on average, are more expansionary, and a higher debt, whose cost is also shared among the more disciplined countries," he said.