Merkel: no quick solution to crisis

The German Chancellor argued that the proposals to pool European debt won't solve the region's economic problems

Published June 27, 2012 12:15PM (EDT)

BERLIN (AP) — German Chancellor Angela Merkel on Wednesday brushed aside the latest push to pool European debt, arguing that it would be "economically wrong and counterproductive" to make such a move before governments have shown they can comply with budget rules.

In the run-up to another European Union summit, Merkel is facing mounting pressure to soften Germany's fierce resistance to jointly issued eurobonds or other forms of debt pooling.

Though eurobonds could reduce borrowing costs for eurozone strugglers, like Spain and Italy, they could increase them for Germany and some others. Berlin worries about being liable for other countries' debts without being able to ensure that they push through economic reforms.

Top European officials have drawn up a plan ahead of the summit, which starts Thursday, that proposes a "medium term" move towards eurobonds, as well as the creation of a banking union with a single authority. They also called for the 17 euro countries to surrender more control over their national budgets, in an apparent nod to German concerns.

Speaking to Germany's Parliament, Merkel made clear that wasn't enough. She argued that the plan called for pooling debt first "and only second — and then very imprecisely — are more control and enforceable obligations named."

"I fear that, at this summit, there will again be much too much talk about all sorts of ideas for common liability and much too little about improved controls and structural measures," she said.

"Quite apart from the fact that instruments such as eurobonds, euro bills, debt redemption funds and many others are constitutionally impossible in Germany, I consider them wrong and counterproductive," Merkel added.

She said that "supervision and liability must go hand in hand," and only when sufficient supervision is ensured could any such measures be considered. Ahead of the summit, Merkel is to meet in Paris late Wednesday with French President Francois Hollande, who has promoted eurobonds as a way out of Europe's debt crisis.

Facing criticism of her austerity-led approach to resolving the crisis, Merkel has talked increasingly of fostering economic growth over recent months. Last week, she agreed with Hollande and her Italian and Spanish counterparts to push for a growth package worth up to €130 billion ($162 billion) at this week's summit.

But she has stuck firmly to her insistence that Europe must tackle its relative uncompetitiveness and heavy debts in a step-by-step process — and that it can't make its problems go away in one stroke.

On Wednesday, she opened her speech by dismissing expectations that the EU summit Thursday and Friday would bring the crisis to an end.

"Because I know the expectations and hopes that are pinned on this summit, I will repeat right at the start what cannot be said often enough," Merkel said. "There is no quick solution and no simple solution. There is no one magic formula ... with which the government debt crisis can be overcome in one go."

"If we are to succeed in overcoming the crisis permanently, then there is only the possibility of seeing this challenge as a process of consecutive steps and measures that tackles the problem at the roots," she said. "Anything else is condemned to fail from the start."

When Merkel returns from the summit, lawmakers are to vote Friday on approving her cherished European budget-discipline pact and on the eurozone's permanent rescue fund.

Merkel last week did a deal with Germany's mainstream opposition parties to secure the necessary two-thirds majority for the budget-discipline pact. The opposition extracted a promise to push for a tax on financial transactions, but the government rejected its call for a debt-redemption fund, which would involve a form of debt pooling.

By Geir Moulson

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Economics European Financial Crisis From The Wires Germany