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Common euro-area bonds will bring in debt: Merkel

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Bloomberg Berlin
Last Updated : Jan 20 2013 | 2:28 AM IST

German Chancellor Angela Merkel attempted to close the door on common euro-area bonds, saying that introducing them now would further undermine economic stability.

While Merkel said that she doesn’t rule out joint borrowing at some point in the “distant future,” euro bonds “are not the answer right now.’”

“Euro bonds are exactly the wrong answer,” Merkel said in an interview with ZDF television from the chancellery in Berlin today. “They lead us into a debt union, not a stability union. Each country has to take its own steps to reduce its debt.”

Merkel has stepped up her opposition to euro bonds since returning from her summer vacation last week, making resistance to common European borrowing a campaign theme of September 4 elections in her home state of Mecklenburg-Western Pomerania.

That risks bringing her into conflict with the European Commission, the European Union’s executive body, which said August 19 that it may present draft legislation on joint euro-area bonds after completing a feasibility report.

Merkel’s stance is also at odds with investors and with Germany’s main opposition Social Democratic Party and its Green Party ally, both of which support euro bonds even as polls suggest a majority of the German public is against them. Germany would face extra costs of ¤47 billion ($67.6 billion) a year if it aligned interest rates with nations that pay more to borrow, the Munich-based Ifo economic institute said on August 17.

‘INFLATION COMMUNITY’
The euro region would become an “inflation community” if member countries decided to sell bonds jointly without unifying their fiscal policies, Finance Minister Wolfgang Schaeuble said in Berlin yesterday.

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Selling common bonds with a single interest rate would spark inflation and destabilise the currency as long as the euro area doesn’t have a single budget policy, Schaeuble said at an open doors event at the finance ministry.

“Unless there is a single financial policy in the euro area, there won’t be a single rate of interest” on debt sold, Schaeuble said.

Schaeuble has said that the government aims to put a second round of financial aid for Greece and changes to the European rescue fund to a parliamentary vote on September 23. Five days earlier, his and Merkel’s Christian Democratic Union faces a state election in Berlin.

Merkel, in her first interview since returning from her three-week summer break, said that decades of deficit spending in euro-area countries has turned the region into a “debt union” that requires each country to slash debt levels.

“This is an arduous task that can’t be solve in one fell swoop, for instance with euro bonds,” she said. “Euro bonds are not the answer for the current crisis, and the task of this government is to solve the current crisis.”

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First Published: Aug 22 2011 | 12:33 AM IST

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