European Union regulators may push for joint bond sales by euro-area nations to help contain the debt crisis, putting pressure on Germany to drop its opposition.
The European Commission said it may present draft legislation on euro bonds when completing a report on the feasibility of common debt sales. The commission, the EU’s regulatory arm in Brussels, earlier this year opposed such a step because of German-led objections.
“The report will, if appropriate, be accompanied by legislative proposals,” EU Economic and Monetary Affairs Commissioner Olli Rehn said in a written response to a European Parliament question. “These euro securities would aim to strengthen fiscal discipline and increase stability in the euro area through markets.” He gave no timetable for either the report or any related draft law.
The idea of jointly sold bonds by the euro area’s 17 nations remains alive because unprecedented bailouts by governments and the European Central Bank have failed to stamp out debt concerns that began in Greece almost two years ago and rattled markets in AAA rated France last week.
German Chancellor Angela Merkel on Friday reiterated her opposition to euro bonds, telling members of her Christian Democratic Union in Hameln, Germany, “we don’t want that.” AAA rated Germany, Europe’s largest economy, would face extra costs of ¤47 billion ($67.6 billion) a year through the alignment of interest rates with nations that pay more to borrow, the country’s Ifo institute said on August 17.
SOUTHERN LIABILITIES
“The idea will not fly politically,” Daniel Gros, director of the Centre for European Policy Studies in Brussels, said by telephone. “Why should taxpayers in northern Europe pay for the liabilities of countries in the south? There are also serious economic problems with such a system.”
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Supporters of euro bonds include southern nations such as Greece and Italy, federalist-leaning Luxembourg and Belgium and leading members of the 27-nation EU Parliament.
French President Nicolas Sarkozy has taken a more neutral position, saying on Aug. 16 that “we could imagine having euro bonds one day, but at the end of a European integration process, not at the beginning of an integration process.”
In this context, the commission under President Jose Barroso agreed last month to prepare a report on the feasibility of euro bonds without specifying whether draft legislation would be part of the exercise.
BLUE-RED PLAN
Rehn’s response to the Parliament question is dated August 12. A legislative proposal would need the support of European governments. In July, Rehn said the feasibility study on common bond issuance would be ready “toward the end of the year.”
The best-known joint-issuance model is the so-called blue- red one drafted by researchers at the Brussels-based Bruegel institute. It foresees euro-area governments selling common bonds to cover debt up to 60 percent of each country’s gross domestic product, the level deemed “sustainable” by the euro’s founding treaty.
That tranche of “blue” bonds would carry a common interest rate. Debt over the treaty limit would be financed by “red” bonds, sold by each country on its own at penalty rates that provide an incentive to keep deficits down.
To contact the reporters on this story:
Jonathan Stearns in Brussels at jstearns2@bloomberg.net;
Aoife White in Brussels at awhite62@bloomberg.net.