Franco-German Summit in Paris Cracks Emerge in Germany's 'Nein' to Euro Bonds

Officially, Chancellor Angela Merkel's CDU remains set against euro bonds. But cracks are emerging in her ranks ahead of Tuesday's Franco-German summit. Some conservative lawmakers say they're not opposed in principle to issuing joint euro-zone debt. Such a move could tear the German government apart, however.

German Chancellor Angela Merkel and French President Nicolas Sarkozy are due to meet in Paris on Tuesday for a summit on the euro.

German Chancellor Angela Merkel and French President Nicolas Sarkozy are due to meet in Paris on Tuesday for a summit on the euro.

The German government has made its position on euro bonds clear: It is opposed to them. Both Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble have said so repeatedly. And Merkel's junior coalition partner, the pro-business Free Democratic Party (FDP), is so bitterly opposed to the joint issuance of euro-zone debt that it has threatened to pull out of the government if such bonds were introduced.

But some lawmakers in Merkel's conservative Christian Democratic Union (CDU) have started to break ranks ahead of Tuesday's summit in Paris between the chancellor and French President Nicolas Sarkozy.

"It makes no sense to wage a black-and-white debate," Johann Wadephul, a CDU member of the Bundestag, told business daily Handelsblatt in an interview published on Tuesday. Euro bonds weren't needed at the moment, he said, but added that he could not understand why they were considered "the work of the devil."

Armin Laschet, a member of the CDU's executive board, demanded an open debate on euro bonds. "We need further integration steps in Europe, especially in fiscal and finance policy," he said. A comprehensive strategy was needed that could "in the end include euro bonds," he told the paper.

Burkhard Balz, a member of the European Parliament for the CDU, said Germany's strict rejection of euro bonds wasn't tenable. "That is why we in Germany need to address the issue of what conditions we could accept euro bonds on," said Balz. If Germany were to agree to introducing euro bonds, "strict conditions" would have to be attached to them, he said.

Euro Bonds 'Not The Right Way' -- For Now

On Monday, Merkel's spokesman said euro bonds were "not the right way" to tackle the debt crisis and that the issue would not be on the agenda at the summit meeting on Tuesday afternoon.

But her opposition is no longer sounding as categorical as it used to. Merkel's spokesman said joint bonds weren't an issue "now" -- implying they could become an issue in the future.

There have been growing calls for euro bonds as a way to stop speculative attacks on the bond markets of high-debt nations. At the weekend, Italian Finance Minister Giulio Tremonti said: "We wouldn't be where we are now if we had had euro bonds."

Top EU officials, including Euro Group chairman Jean-Claude Juncker and EU Economic and Monetary Affairs Commissioner Olli Rehn, also back the idea.

Sarkozy Pinning Hopes on Summit

But German politicians and economists warn that euro bonds could sharply increase German borrowing costs by forcing Berlin to pay a higher interest rate on its debt than it does at present.

In France, Tuesday's summit is being referred to as a "decisive tête-à-tête," and there are hopes that the two leaders will come up with words or deeds that will stop the crisis getting worse.

French markets were hit hard last week by rumors of a possible downgrade of its triple AAA credit rating, and Sarkozy badly needs to raise his profile as a crisis manager to help offset mounting domestic economic problems ahead of next year's presidential election.

Merkel, by contrast, can't afford to sign up to euro bonds at present because it would put the survival of her government at risk, should the FDP make good on its threat to pull out of the coalition.


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