Now that the European debt crisis has flared up again, it was only a matter of time before a familiar term was back in the headlines: euro bonds. The idea of jointly issued European bonds was a topic of much discussion in the summer of 2011, when they were firmly rejected by Germany. Now newly-installed French President François Hollande has refuelled the debate.
After a G-8 summit in the United States on Saturday, Hollande said that he would propose euro bonds at a European Union summit on Wednesday in Brussels. "I will outline all growth proposals at this informal meeting on May 23," Hollande told reporters at Camp David, Maryland. "Within this packet of proposals there will be euro bonds and I will not be alone in proposing them. I had confirmation on this at the G-8."
The Brussels meeting is expected to focus on the French president's call for measures to boost growth across the EU, especially in the 17-nation euro zone, while maintaining efforts to cut budget deficits. Reports said Italian Prime Minister Mario Monti and British Prime Minister David Cameron back Hollande's call for euro bonds that would be issued and guaranteed by all euro-zone states.
Merkel has so far strictly opposed such bonds, arguing that the prospect of fresh debt at affordable interest rates for all euro-zone members would remove the incentive for countries to maintain budget discipline. The bonds could also increase German borrowing costs, which are far lower than for most other euro member states. German debt is seen as particularly safe and is therefore in high demand.
There is currently no sign that Berlin will change its position. A spokesman for the German government rejected Hollande's call for euro bonds on Monday, saying they were not an appropriate measure to fight the current crisis.
On Monday, German editorialists take a look at Hollande's support for euro bonds.
The left-leaning Berliner Zeitung writes:
"In the context of the euro crisis, the Germans are familiar with a certain law: If the chancellor rules out something today, the probability increases that she will agree to it tomorrow. There is also a second, less well known law: Everything recurs, including the tensions and challenges in the monetary union as well as the debate over the appropriate solutions."
"It is of course clear to François Hollande that (by proposing euro bonds) he is provoking Merkel to the utmost. She has opposed nothing as vehemently as euro bonds, which in Germany are seen as a symbol of southern Europeans living the good life on credit, at the expense of the thrifty Germans. Once again, Merkel will remain tough. But Hollande is betting that the not-so-iron chancellor will have to make concessions in another area. The euro zone is ablaze -- yet again. And again, the chancellor will have to agree to rescue packages by the member states or the European Central Bank that she would have liked to prevent. This is the clearest expression of just how brutally Merkel's euro-zone policy has failed. Under her regime, Europe always finds itself back to square one. And each time it gets more expensive."
The Financial Times Deutschland writes:
"Maybe you just need to give it a different name. Maybe if euro bonds were not actually called euro bonds, but, say, 'EU consolidation pact' or 'currency circulation project of European unity,' then Chancellor Angela Merkel might finally give up her resistance. After all, there is hardly any objective reason for her resistance any more, which is based mainly on diffidence toward her own voters. At the G-8 summit, it wasn't just the French socialist François Hollande arguing in favor (of euro bonds), but also Italy's technocrat prime minister, Mario Monti, and British Prime Minister David Cameron, a conservative who favors austerity. All legitimate concerns notwithstanding, they have come to the realization that a monetary union can only be sustained in the long run if the member states vouch for each other."
"The ideas that Greece can remain in the euro zone and that a Greek exit will not affect other states are vague hopes, nothing more. To achieve that, it is necessary to send a strong signal to investors that they do not have to fear for the survival of the monetary union. That involves member states assuming liability for each other and saying just that clearly and openly. The question of how that is constructed and implemented, and whether it's called euro bonds, blue bonds or amortization fund, is of secondary importance."
The business daily Handelsblatt writes:
"If the new French President François Hollande now starts constantly calling for euro bonds, he will be doing himself no favors. German taxpayers are opposed to being held liable for other countries -- and rightly so. But maybe Hollande is only creating confusion that will soon dissolve into thin air. Apparently when he talks about 'euro bonds,' he doesn't mean the jointly issued sovereign bonds that put such fear into Germans, but rather what Germans refer to as 'project bonds,' which would be issued to fund large-scale infrastructure projects."
"In that case, he might indeed manage to find a compromise position with Chancellor Angela Merkel, who at the end of the day will have to make some concessions if she doesn't want to destroy the cohesion of the euro zone. Hollande would be able to sell project bonds as a kind of first step toward joint liability, while Merkel could play them down as a limited community project, similar to, say, Germany's financing of the European Investment Bank. Both sides would have saved face. In the best-case scenario, the markets would interpret it as a signal of greater solidarity, thereby slightly easing the pressure on the weaker euro-zone countries. At the moment, that's about as much as we can hope for in the euro zone."
-- David Gordon Smith
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