German opposition leaders back eurobonds
Germany should back a limited edition of pan-European bonds as part of a three-prong approach to the eurozone debt crisis, opposition leaders said Wednesday.
"The time for stumbling through the euro crisis is over," Frank-Walter Steinmeier and Peer Steinbrueck said in commentary published in the Financial Times and the Financial Times Deutschland.
Steinmeier is a former German foreign minister while Steinbrueck held the finance ministry portfolio in a coalition government with Chancellor Angela Merkel, who has flatly opposed the idea of a common eurozone bond.
The two former ministers called for a comprehensive solution to the debt issue that would also require private investors in sovereign debt to suffer losses in the event of a default, while providing debt guarantees for stable countries.
"These measures would only work together; none alone would restore stability," they stressed.
European Union leaders meet on Thursday to work out a permanent rescue mechanism for the eurozone, which will have 17 members when Estonia joins on January 1.
The German politicians said debt for Greece, Ireland and Portugal should be restructured and that private investors should be expected to share in the losses via a discount in the value of their investments known as a 'haircut.'
The bond markets have reacted badly to such proposals in the past, with investors demanding higher rates of return on debt that they consider at risk of suffering a 'haircut.'
To avoid contagion of economies such as those of Italy and Spain, guarantees should be provided to cover "the entire outstanding debt of stable countries, backed by an enhanced rescue fund."
Finally, the EU should send "an unambiguous political signal of the irreversibility of economic and monetary union," via the introduction in the medium term of new European bonds that would cover "a limited share of public debt." they said.
German support for a bond should come in exchange for stronger alignment of policy in other fields, such as minimum standards on wages and welfare, and an end to "harmful tax competition within the eurozone," they added.
© 2010 AFP