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Germany says eurobonds no 'cure' for debt crisis

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Germany says eurobonds no 'cure' for debt crisis
Photo: DPA

The idea of introducing so-called "eurobonds" across the 17-nation eurozone should not be considered a miracle remedy for its debt crisis, German Chancellor Angela Merkel's spokesman said on Monday.

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"The chancellor and the federal government do not share the opinion of many

others that eurobonds are now a sort of universal cure for the crisis," Steffen Seibert told a regular government news conference in Berlin.

Furthermore, the idea of eurobonds could even hinder Europe from finding an effective solution to the debt crisis that threatens to push the continent and the wider world into a crippling recession.

Berlin "sees the danger that such eurobonds could prevent us from attacking the problem at its roots," Seibert said. "None of the measures that are being discussed at the moment in public, which includes eurobonds, would bring a solution if they were immediately introduced," he said, quoting comments made by Merkel last week.

Instead of focusing on eurobonds, European officials should be working on a two-pronged strategy, Seibert said.

Firstly, he called for "quick, consistent, open and transparent measures in the member states to put these countries back on the path of financial stability and ... make them competitive." Secondly there was what Merkel calls the "political solution."

"This is to create the structures in Europe that have been missing until now to make binding the agreements that already exist," he said, apparently referring to the EU's stability and growth pact which sets down basic economic targets and rules for its members - most of which have been flouted for years.

The EU will this week urge eurozone states caught up in the debt crisis turmoil to club together to guarantee each other's debts, vowing to police national budgets ruthlessly by way of a safeguard.

Among a range of options, the Commission envisages an evolving system of "Stability Bonds" that could bring down the borrowing costs of those under the most pressure "relatively quickly," documents showed Sunday.

Seibert refused to comment on proposals that have not yet been tabled but hinted that the matter would feature at a meeting on Thursday between Merkel, French President Nicolas Sarkozy and Italian Prime Minister Mario Monti.

Berlin has traditionally been opposed to eurobonds since, as Europe's top economy and its most creditworthy, it fears it would end up guaranteeing the debts of fiscally weaker countries, pushing up its own borrowing costs at the same time.

Additionally, Germany believes that a pan-eurozone bond would take the spotlight off heavily indebted countries and reduce the pressure on them to implement much-needed economic reforms and stabilise their public finances.

But the debt levels of eurozone powerhouse Germany will stay elevated for several years to come, its central bank warned on Monday, as Berlin insists its European neighbours cut their own debt piles.

Germany is expected to have "a debt level above 60 percent (of gross domestic product) for many years," even without taking into account the current crisis, the powerful Bundesbank cautioned in its monthly report.

With a rapidly ageing and shrinking population, a "loss of confidence" in the solidity of Germany's public finances could not be ruled out if "further costs" arose, the bank added. This demographic factor "will soon get considerably worse", the report said, which will automatically push up the debt levels if decisive action is not taken.

As an ageing population retires, tax revenues decline and pension and healthcare costs rise, pushing up a country's deficit, which is then added to its debt pile.

Germany's debt is set this year to decline to 81.1 percent of GDP, compared to 83.2 percent last year, according to federal government figures. In addition, a relatively healthy first half of the year economically should cut the deficit to around one percent this year, compared to 4.3 percent in 2010, the Bundesbank said.

AFP/The Local/mry

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