EU wants power to dictate eurozone national budgets
The European Union set out on Wednesday on a road to landmark changes enabling EU officials to supervise national budgets before they go through parliaments, a pre-condition for sales of pooled eurozone bonds.
Germany immediately repeated hostility to the eurobond idea, saying it was an approach which would not work.
Jose Manuel Barroso, head of the executive EU Commission, and Economic and Monetary Affairs Commissioner Olli Rehn, presented a package of measures including these two controversial proposals pitched as key to preventing a repetition of the debt crisis.
"The goals driving this package -- economic growth, financial stability, budgetary discipline -- are linked to each other," said Barroso. "We need all of them if we are to move beyond the current emergency."
The legislative proposals now journey through the EU's 27 member states and the European Parliament, but they are already facing opposition in many quarters.
While Germany, the economic mainstay of the EU, backs hardline fiscal surveillance, it strongly opposes the creation of common bonds as a solution to the crisis.
Chancellor Angela Merkel repeated her hostility on Wednesday, just as investors shunned an issue of German 10-year bonds, considered the eurozone gold standard.
The European Union has rules on annual deficits and cumulative debts but these have been trampled over for years by its governments.
This time, Brussels wants to force eurozone states to furnish detailed spending and revenue plans in advance each year, after some eurozone countries ignored voluntary provision of figures, a Commission official said.
The Commission wants the power to send inspectors in to treasuries and finance ministries around Europe, and demand changes it believes better meet the needs of the common good before funds are legally allocated.
Rehn argued that the introduction of so-called "stability bonds," the other key legislative proposal on the table, would work only if done hand-in-hand with this radical budgetary intervention.
Berlin actually wants to go further on surveillance -- indeed Germany wants the European Court of Justice to be empowered to pursue the worst offenders, and backed by France, a separate set of ideas will soon be brought to the table.
"Madame Merkel and I will soon make proposals for treaty modifications in order to prevent states from diverging in budgetary, economic or fiscal policy," said French President Nicolas Sarkozy late on Tuesday.
As well as bailed-out trio Greece, Ireland and Portugal, eurozone giants France, Italy and Spain have each seen their borrowing costs rise on bond markets this year.
Belgium is also in danger amid an 19-month political paralysis that has prevented parties agreeing a government or budget.
Germany is against joint eurozone bonds -- with Merkel spelling out it is not the right answer, neither now nor in the longer-term.
She said in a speech to parliament that she found it "extremely worrying" and "inappropriate" that the Commission was pressing ahead. "This will not work," she said.
Germany was able to place only 3.6 billion euros' ($4.8 billion) worth of its benchmark 10-year "Bund" from a total of 6.0 billion euros on offer.
As Europe's biggest economy and the state with the lowest borrowing costs, Germany already worries it would be liable for the lion's share of pooled borrowings -- at least until such time as the European Central Bank declares itself a US-style "lender of last resort", a route which it also opposes.
Germany argues that joint bonds would discourage wayward governments from fixing their finances, and is also concerned that pooled risk could cause it problems in managing its own debt.
France and Germany are divided over allowing the ECB to intervene massively, with huge monetisation of debt, which according to some economists is the quickest way to save the eurozone.
Leaders of the 27 EU states are expected to debate the legislative package and related ideas at a December 9 summit.
Any change requiring states to bail out partners -- beyond purely voluntary action -- would involve changes to the EU's treaty. That in turn is a tortuous process, involving referendums in some countries, and pitching those who say greater integration is vital against those who stand by national sovereignty.
Three options for eurozone bonds envisaged by the Commission point to an evolving system it says could bring down yields for those under the most pressure, perhaps beginning only with the best-run economies and only selective guarantees.
© 2011 AFP