Merkel on the rack as France, Germany meet
Markets await decisive action, including a eurobond, to halt deepening euroland crisis
German chancellor Angela Merkel was facing significant internal pressure yesterday to at least agree to study the idea of eurbonds as a solution to the debt crisis.
Germany's main exporters yesterday came out in favour of eurobonds, while the German opposition, the Social Democrats, have also indicated their support for such an idea.
The party's chairman said there was an "urgent need'' for European governments to at least part fund themselves through the issuing of eurobonds.
However, the idea is strongly rejected by Ms Merkel and is unlikely to be the forefront of today's meeting with French president Nicolas Sarkozy. Her coalition partners, meanwhile, are strongly against the eurobond idea.
The leaders of the two biggest euro-area economies are meeting after France and French banks came under pressure last week when volatility in the markets wiped out investments worth trillions of euro.
The agenda for today's meeting has not been published but there is increasing pressure on the two leaders for decisive leadership to end the debt crisis.
Many analysts, including hedge-fund billionaire George Soros, say they will take a commitment to consider a common European bond.
Germany's government is opposed to any measure, including common bonds, it sees as detrimental to German's interests, but the messages coming from Germany are increasingly mixed on the issue.
Yesterday, the president of Germany's export association became the first senior industry head to back the idea.
"What is the alternative?" Anton Boerner said in an interview. "The alternative is the markets attack Italy, then France, we lose our AAA rating and then it's our turn. This is a downward spiral that would lead to a worldwide depression.
"What have we achieved then?" Mr Boerner continued. "We'll end up paying (for the crisis) three times over. This way we pay just once."
German's main opposition party also backs the European bond plan.
Despite such outspoken criticism from business, the German government signalled last night that it will pile the pressure on the rest of Europe to cut costs, rather than embrace the idea of common bonds.
Any softening of that stance by Ms Merkel could threaten the coalition government she leads, with the junior Free Democrat party vehemently opposed to sharing Germany's borrowing capacity with the rest of Europe. Yesterday, Ms Merkel's spokesman Steffen Seibert warned investors not to expect a "big bang" from today's meeting and the German government last night outlined plans to slash its own borrowing.
In the bond markets, traders said they don't anticipate a huge breakthrough deal today.
(Additional reporting Bloomberg, Reuters)