That Angela Merkel is not a fan of collectivizing euro-zone debt is hardly new. The German chancellor has long voiced her concern that the introduction of euro bonds could remove incentives for debt-stricken countries to reform.
But on Tuesday, ahead of the crucial European Union summit in Brussels on Thursday and Friday, she was clearer than ever in her rejection of debt sharing across the common currency area. During a meeting with parliamentarians from the Free Democratic Party (FDP), her junior coalition partner, she said there would be no full debt sharing "as long as I live." SPIEGEL ONLINE was told that several FDP lawmakers responded by saying: "We wish you a long life."
Until now, Merkel's message had been measured. Euro bonds, she often said, are not "currently" the correct strategy to fight the crisis. She insists that any debt sharing be preceded by far-reaching reforms that ensure greater Brussels control over national budgets and borrowing. One lawmaker told the Associated Press that Merkel's Tuesday statement was in reference only to full debt sharing.
Storm Clouds Ahead
Still, her choice of words would seem to indicate that she is not in a mood to compromise, despite the dark clouds currently gathering over the common currency area. Merkel also made clear on Tuesday that she is unhappy with a crisis strategy paper (downloadable here as a PDF file) developed by a quartet of EU leaders and completed this week. The plan, developed by European Council President Herman van Rompuy, European Central Bank head Mario Draghi, European Commission President Jose Manuel Barroso and Euro Group chair Jean-Claude Juncker, calls for the creation of a banking union complete with euro-zone wide deposit guarantees and the creation of a joint crisis fund.
But the strategy paper also opens the door to the medium-term introduction of some form of shared debt. And that, says Berlin, is not acceptable. In a second parliamentary meeting on Tuesday, this time with lawmakers from her own Christian Democrats, Merkel said that the balance between joint oversight and shared debt had not been struck, adding that she was not satisfied.
Jens Weidmann, head of Germany's central bank, the Bundesbank, once again joined the fray on Wednesday in a contribution for the national daily Süddeutsche Zeitung. In the piece, he again underlines his opposition to debt sharing prior to the establishment of a broad fiscal union.
"The attempt to communitize debt prior to a deepened integration threatens to endanger the currency union," he writes. "The creation of a debt union in which decisions are not anchored in responsibility, and in which liability for others takes place without controls, would only increase the current political and economic instabilities."
Merkel's obstinacy will likely result in a less than collegial EU summit. Several crisis-stricken countries have united in opposition to Germany's ongoing insistence on austerity and refusal to countenance debt sharing. French President François Hollande, in particular, has turned away from the German strategy.
Monti under Great Pressure at Home
Italian Prime Minister Mario Monti, however, would appear to have the most to lose. In recent days, he has repeatedly insisted on using the European Stability Mechanism (ESM), the permanent euro-zone bailout fund, to bring down borrowing costs for Spain and Italy by buying up sovereign bonds on the secondary market, a position supported by Paris. Merkel's government is opposed, preferring not to change the ESM's current structure, which provides for bailouts of countries in need in exchange for strict austerity conditions.
Still, Monti did receive support on Wednesday from the Berlin opposition. In comments to the Financial Times, Social Democratic Party leader Sigmar Gabriel -- while underlining his own opposition to euro bonds -- backed the Italian prime minister's call for immediate measures to lower borrowing costs. "We must now create a firewall to protect individual countries from this interest rate blackmail," Gabriel told the paper. "I would urge that we improve our crisis management, so that we create at least the possibility of intervention, if spreads get too great."
Merkel's position, of course, is informed largely by her electorate back home. Most Germans strongly believe that establishing fiscal responsibility in crisis-stricken countries is paramount and are unwilling to provide further taxpayer handouts until that happens.
If anything, however, Monti is facing even more political pressure on the home front. Italian borrowing costs have been rising dangerously in recent weeks and the prime minister's popularity, and political support, has been plummeting. Should he return from Brussels without clear successes, his government could topple -- an impression reinforced recently by statements from former Prime Minister Silvio Berlusconi, who leads Monti's largest coalition partner, the People of Liberty. Berlusconi has recently said that it would not be a bad thing were Germany to leave the euro and also has indicated his party might back out of the governing coalition, which would lead directly to Monti's fall.
Monti, it would seem, has not been immune to the pressure. In a speech to parliament on Tuesday, he said he will continue to push his proposal for using the ESM to lower borrowing costs and that he would not go to Brussels to "rubber stamp" statements that had already been written.
He also said that he was prepared to stay in Brussels until Sunday night to get an agreement that will calm markets. Given the acrimony on the eve of the meeting, other EU leaders might be wise to extend their hotel reservations as well.