Germany is stepping up its campaign against the introduction of eurobonds. But with other large economies in the eurozone in favor of pooling sovereign debt in the currency union, Europe’s paymaster is nearly isolated.
Chancellor Angela Merkel insisted before the weekend that the greatest problem in the eurozone is the difference in competitiveness across member states. She added that it “makes no sense to patch this up with eurobonds or similar supportive instruments only to subsequently encounter an even more difficult situation.”
She was joined by the leader of her liberal coalition partners, Rainer Brüderle, who characterized eurobonds in interview with Die Welt as “interest socialism” that would enable highly indebted eurozone countries to profit at the expense of a few successful ones.
“We should concentrate on the right growth strategy,” said Brüderle “Then we can harmonize Hollande’s desire for growth with the German culture of stability.”
Newly-elected French president François Hollande is a proponent of eurobonds and seeks to shift the emphasis in Europe from austerity to “growth” — which, he believes, means more room for government stimulus.
Merkel earlier said that Europe had to “get away from the idea that it always costs money to get economic growth” and warned that, “Growth on credit would just push us right back to the beginning of the crisis and that is why we should not and will not do it.”
The Germans fear that the creation of eurobonds will ultimately lead to a “transfer union,” the permanent bailing out of weaker states in the single currency area at their expensive.
The sentiment is widespread. An opinion poll commissioned by German state television network ZDF published on Friday showed that 79 percent of Germans reject eurobonds as a solution to the European sovereign debt crisis. Just half of them believe that being in the euro still carries more benefits than costs to Germany.
All of Germany’s large neighbors have embraced eurobonds as a way out of the crisis. Italian and Spanish prime ministers Mario Monti and Mariano Rajoy have endorsed Hollande’s proposal, as did David Cameron last week. The United Kingdom, being outside of the eurozone, wouldn’t have to participate though.
Austria, Finland and the Netherlands remain opposed. With Germany, they argue that more progress is needed on coordinating fiscal policies across the eurozone before members can consider jointly issuing sovereign bonds.