February 27, 2021

Members of Merkel’s Party Emphasize Opposition to Euro Bonds

FRANKFURT — Chancellor Angela Merkel of Germany has faced harsh criticism for being too passive in the face of Europe’s debt crisis. But on Monday, members of her own party and the Bundesbank made it clear just how hard it would be for her to pursue any solution that asked German taxpayers to sacrifice for the sake of European unity.

With many economists calling for Europe to expand the euro zone’s bailout fund or start issuing bonds guaranteed by all 17 of the countries that share governance of the common currency, German politicians at home struck back.

“Euro bonds would push up German interest rates,” Philipp Missfelder, the foreign affairs spokesman for Mrs. Merkel’s Christian Democratic Union, said Monday after a meeting of the center-right party’s board. “The cost of servicing the debt would be enormous.”

Meanwhile, the Bundesbank, representing the views of Germany’s monetary authorities within the European Central Bank, complained Monday that liabilities acquired by weaker countries were being offloaded onto the stronger ones.

“A major step is being taken toward common assumption of risks from weak national finances and economic missteps,” the Bundesbank said in its monthly bulletin. “This weakens the foundation of fiscal responsibility and self-discipline.”

The president of the Bundesbank, Jens Weidmann, is Mrs. Merkel’s former economic adviser.

Germany is the euro area’s largest and richest country, and no solution to the Continent’s debt crisis can succeed without German political support and German money.

Germany “would have enormous power if it took the initiative,” said Daniel Gros, director of the Center for European Policy Studies in Brussels.

“Now would be a time when they could do something,” he said of Mrs. Merkel and other German leaders. But “I’m not holding my breath.”

Many analysts complain that while Mrs. Merkel and other leaders, like Wolfgang Schäuble, the German finance minister, have made broad statements about cutting debt and promoting closer economic cooperation in Europe, they have offered few specifics and no timetable.

During a morning-long meeting of the party’s board in Berlin, the first since the summer recess, Mrs. Merkel told party leaders that she would not support the issuance of common European securities. Mrs. Merkel was repeating the position she voiced Sunday in an interview with ZDF television.

Advocates say euro bonds would allow members of the euro zone to pool their financial strength and hold down borrowing costs for weaker countries like Greece or Spain.

But even the most outspoken advocates acknowledge that even if German leaders agreed, it would still be unlikely that euro bonds could be issued soon enough to help much in the current crisis. Common debt would have to be accompanied by tougher rules on fiscal prudence, which would take months if not years to negotiate.

“I believe that is where we are headed, but it is not going to happen overnight,” said Laurent Bilke, head of European interest rate strategy at Nomura in London. “That is why the market is in a bad mood. There is no obvious quick fix that you can think of.”

Leading stock indexes in Europe and the United States rose Monday after brutal losses last week that were caused in part by investors’ doubts that European leaders were capable of developing an adequate solution to the debt crisis. That is a reason few analysts expect that the stock market turmoil is over.

In the absence of a more potent political solution, the European Central Bank has steadily increased the scope of its activities, most recently intervening in bond markets to prevent borrowing costs for Spain and Italy from reaching dangerous levels.

The central bank disclosed Monday that it spent 14.3 billion euros ($20.5 billion) buying government bonds on open markets last week, down from 22 billion euros the week before. The central bank does not disclose which bonds it purchases, but Mr. Bilke said the bank appeared to be buying 10-year Italian and Spanish bonds with the aim of holding their borrowing costs below 5 percent. If yields rise back to 6 percent or more for any extended period of time, it would most likely prove too expensive for the countries to bear.

Article source: http://feeds.nytimes.com/click.phdo?i=9daec2ab6a8b1f6ea9730809895c48ce

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