EU needs 'courage' to set limits on markets: Merkel

24th November 2010, Comments 0 comments

German Chancellor Angela Merkel said Wednesday that Europe should have the courage to set limits on markets by ensuring that private investors bear some of the risk of future eurozone bailouts.

"Do politicians have the courage to also make those who earn a profit take some of the risk?" Merkel said in a speech to parliament. "This is about the primacy of governments, about setting limits on markets."

With its banking system in dire straits and its budget deficit forecast to be 10 times the EU limit this year, Ireland on Sunday became the second eurozone member in six months to apply for a bailout after Greece.

The rates Spain has to pay to borrow fresh money jumped sharply on Wednesday as debt strains show signs of spreading from Ireland, while in Portugal workers staged a strike in protest at government austerity measures.

Merkel said that Germany would look "positively" on Ireland's request, reportedly worth some 85 billion euros (114 billion dollars), while Foreign Minister Guido Westerwelle said he saw no danger of contagion.

The chancellor, facing unease from voters and newspapers to bailing out other countries, has pressed for changes to the EU's Lisbon Treaty.

The constitutional court, Germany's highest, is yet to rule on the validity of the German contribution to the Greek bailout and is certain to look very closely indeed at any Irish aid and whether it is compatible with German law.

Merkel has convinced other countries on the need for tougher rules for those countries which breach EU fiscal rules but Germany also wants private investors, not just taxpayers, to share some of the risk on bonds sold by eurozone governments.

This has rattled markets and some other European governments anxious about their own need to raise cash via bond sales, making for tough negotiations ahead of a summit of the bloc's leaders in mid-December.

"The markets, as they are so wonderfully called, are unsettled when one says something like that," Merkel said on Wednesday.

"This is quite a crucial question. We often said at the start of the (financial) crisis that it cannot be that governments do not call the shots ... This is exactly what the issue is now."

Ireland is expected to tap the 750-billion-euro rescue vehicle know as the European Financial Stability Facility (EFSF) created by eurozone governments and the International Monetary Fund.

This was hurriedly cobbled together earlier this year when Greece came close to defaulting on its debt amid fears that other countries, notably Ireland, Portugal, Spain and even Italy might follow suit.

But the EFSF expires in June 2013 and Germany wants it replaced by a permanent mechanism.

Frank-Walter Steinmeier, parliamentary head of the opposition Social Democrats (SPD) and former foreign minister, hit out at Merkel for creating confusion and offending other countries in Europe.

"Clearly we are not being properly understood (by other European countries) and this cannot be just the fault of others ... We have gone over the top a bit with our little tactical games," Steinmeier said in parliament.

Merkel responded by blaming the SPD for allowing Greece to join the eurozone in the first place and for then weakening rules in the EU Stability and Growth Pact covering budget deficits while in power under Gerhard Schroeder.

© 2010 AFP

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