Britain and France back Eurobonds
THE UK and France have joined forces to demand that Germany underwrites Greece’s crippling debts by issuing so-called eurobonds.
Eurobonds would pool sovereign debt issuance among all of the euro’s 17 member states, allowing weaker countries such as Greece to lean on the triple-A ratings of Germany and others.
German Chancellor Angela Merkel has long opposed the use of eurobonds, arguing they would cut borrowing costs for troubled Eurozone nations and remove incentives for them to make vital economic reforms while putting the German taxpayer on the hook.
But George Osborne, the UK chancellor, has formed an unlikely alliance with François Hollande, the recently elected socialist French president, by backing the concept as a solution to the escalating Eurozone crisis.
“The Eurozone needs to follow the remorseless logic of monetary union towards greater fiscal integration and burden-sharing,” he said yesterday, adding that eurobonds were “one possible mechanism”.
The chancellor praised the efforts of countries like Greece, Spain and Italy for taking tough decisions on spending and economic reform, but warned that austerity in the weak economies is not sufficient by itself.
“In the absence of flexible exchange rates the economic and political barriers to dealing with those problems will only get worse without more support from the core of the Eurozone,” he wrote in the Sunday Times.
At the G8 meeting of leaders this weekend, Hollande said he would make proposals for eurobonds at an EU summit on Wednesday. The new French President indicated he has the support of other countries in calling for Germany to support the Eurozone financially, saying: “I will not be alone in proposing them. I had confirmation on this at the G8.”
The use of the Eurozone’s bailout funds to directly recapitalise banks will also be back on the agenda at the summit, another sign that Germany – which opposes such a measure – is struggling to dominate the political debate.
The demands for eurobonds came after a week in which Greek politicians failed to form a government, increasing the chance that the country will fail to fulfil its financial obligations to creditor nations and so be forced out of the Eurozone.
Meanwhile, Prime Minister David Cameron warned that Greece needed to vote for pro-bailout parties in next month’s repeat elections or risk being thrown out of the euro.
“There is a choice: they can vote to stay in the Eurozone and meet their commitments. Or they can vote to… effectively give up on the Eurozone,” he said.
Last night, two Greek polls showed the two mainstream parties Pasok and New Democracy are on course to win enough seats to form a pro-bailout government, which would help calm markets.