Longtime austerity advocate and German Chancellor Angela Merkel says she will only consider France’s proposed “collective debt” solution if the rest of the EU agrees to her ambitious demands.
French President Francois Hollande introduced the idea of an EU-wide “collective debt” agreement, which would use euro bonds to reduce troubled countries’ borrowing costs, in May. However, for all the obvious reasons, Germany opposed his solution.
Austrian finance minister Maria Fekter rejected the idea of introducing jointly issued bonds and said that “running up new debts to finance growth is ‘nonsense,’” the AP reports.
During a radio interview with Oe1 radio, Maria Fekter, said that “eurobonds [sic] are only attractive for those ailing countries that pay very high interest rates, who…go to the neighbor who has good creditworthiness and say, ‘Dear neighbor, please pay my debts.’” She added: “I don’t want to pay the neighbors’ credits.”
Contrary to Keynesian beliefs, the Austrian finance minster insisted “growth from new debts is nonsense.”
And before Fekter’s “nonsense” remarks, Bundesbank chief Jens Weidmann said during an interview with Le Monde newspaper that it was an “illusion” to think allowing eurozone countries to borrow money jointly would solve the crisis.
“He said countries that use the euro would need to combine their budgets before turning to euro bonds,” the report adds.
However, the German alternative to government spending solutions (i.e. slashing budgets with austerity measures) has not been well received either. With the ousting of French President Nikolas Sarkozy, a Merkel ally, the German Chancellor has found herself alone among EU leader who believe spending is the wrong solution for the eurozone crisis.
But perhaps Hollande’s “collective debt” proposal has presented Germany, the most stable and wealthiest country in the 17-nation union, with an opportunity.
“After falling short with her ‘fiscal compact’ on budget discipline, German Chancellor Angela Merkel is pressing for much more ambitious measures, including a central authority to manage euro area finances, and major new powers for the European Commission, European Parliament and European Court of Justice,” Reuters reports.
She has also proposed a coordinated effort to reform and restructure labor markets, social security programs, and tax policies.
“Until states agree to these steps and the unprecedented loss of sovereignty they involve, the officials say Berlin will refuse to consider other initiatives like…a ‘banking union’ with cross-border deposit guarantees,” Reuters report.
But Merkel wouldn’t put these demands on the table unless she was at least partially serious, right? Actually, she probably is very serious. Although a “collective debt” solution is an unappealing option for the German state, it can be used as a bargaining chip.
Let’s put it this way: the EU’s financially desperate countries (i.e. Greece, Spain, etc.) are so eager to get Germany to agree to a “share the load” solution that they might actually concede a great deal of power to the Merkel administration — and she knows it.
Spanish Prime Minister Mariano Rajoy told a Senate session that Europe “needs to support those that are in difficulty.”
“It needs fiscal integration with a fiscal authority and banking integration, a banking union with Eurobonds [sic], a banking supervisor and a European guaranteed deposit fund,” he added.
European leaders are to hold a summit on June 28 on how to stop the 17-country eurozone from collapse, the AP reports. The European Commission and the ECB will likely discuss measures for creating a “banking union” that would oversee banks and “possibly offer bailouts directly, bypassing national governments.”
The Associated Press contributed to this report. This story has been updated.