Merkel vows no European country will be abandoned

15th December 2010, Comments 0 comments

German Chancellor Angela Merkel moved Wednesday to silence fears of a eurozone break-up, saying that although some members faced tough challenges, Europe's paymaster would not desert them.

"No one in Europe will be left alone, no one in Europe will be abandoned," Merkel said in a speech to the German parliament ahead of a summit of European Union leaders on Thursday and Friday set to be dominated by the euro crisis.

"Europe succeeds when it acts together and I would add, Europe succeeds only when it acts together."

Merkel said that some in the 16-nation eurozone faced an uphill task in repairing their public finances but she expressed confidence that the single currency would survive.

"It is undeniable that some eurozone countries face difficult challenges but it is also undeniable that the euro has shown itself to be crisis-proof," Merkel said.

"We should keep reminding ourselves what would have happened during the turbulence of the financial crisis if we had all had our own currencies."

Ireland last month became the second eurozone member after Greece to seek a bailout, tapping a 750-billion-euro (one-trillion-dollar) temporary mechanism set up by the EU and the International Monetary Fund.

There are fears that others, most notably Portugal and Spain but also Italy and Belgium, might also need help as investors worried about their solvency demand ever-higher interest rates to lend them money.

"Italy alone needs to borrow 100 billion euros in the first few months (of 2011)," economist Henrik Enderlein told the Tagesspiegel daily.

With Merkel's centre-right coalition languishing in the polls ahead of seven state elections in 2011, further bailouts could be a step too far for German voters, who are already unhappy about the Irish and Greek rescues.

"Are we going to have to pay for the whole of Europe?," the mass-circulation Bild daily said in a recent headline.

Merkel wants EU leaders this week to agree on setting up a new, permanent crisis mechanism for after 2013 that would include private investors in the costs of any future bailouts.

The German leader also wants the EU's governing treaty to be tweaked so that the crisis mechanism can operate without incurring objections from the country's constitutional court.

Berlin additionally wants Brussels to be able to keep a closer eye on member states' budgets, a sine qua non for taking on greater responsibility for their finances.

Germany and France however reject a proposal from Luxembourg and Italy for joint eurozone bonds, something which would help weaker eurozone countries borrow money more cheaply -- but push up the cost for Berlin and Paris.

At present, European leaders have left it to the European Central Bank to try to keep borrowing rates low, by buying up some 72 billion euros worth of bonds since May.

The ECB might ask member central banks to top up its funds as a result, a source told AFP this week. Germany indicated it was supportive of this.

Merkel has said eurobonds -- which were backed on Wednesday by Germany's opposition Social Democrats -- would be in breach of the EU's governing treaties and would weaken countries' resolve to fix their public finances.

Luxembourg Prime Minister Jean-Claude Juncker, who also chairs meetings of eurozone finance ministers, told AFP in an interview on Wednesday that Europe "will come back to this idea" in the future, however.

Jean Asselborn, the 500,000-strong country's foreign minister, meanwhile hit out at what he called German and French "arrogance", slamming them for dictating solutions to smaller member states.

© 2010 AFP

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