France says no need now for eurobonds: presidential source

9th December 2010, Comments 0 comments

France is not in favour of creating eurozone bonds for the time being as an extra response to the financial crisis, a French presidential source said on Thursday.

"There is no reason today to discuss new proposals so soon after we have just agreed on a permanent (support) mechanism," the source said.

A proposal for eurozone countries to pool their borrowing capacity by creating common bonds "has been the subject of reaction by Germany, it raises difficulties, notably of morality, of sharing the costs and benefits of (bond) issues," the source said, referring to opposition to the idea from Germany.

The head of the Eurogroup of eurozone finance ministers, and Luxembourg Prime Minister, Jean-Claude Juncker attacked Germany for being "un-European" for rejecting the suggestion out of hand, in remarks published on Wednesday.

On Monday, Juncker and Italian Finance Minister Giulio Tremonti had argued the case for eurozone bonds.

The principle of a eurozone bond is that it would enable weak eurozone countries to link up with stronger countries such as Germany and France to borrow money, instead of being exposed alone when they issue their own national bonds to raise money from investors.

In principle, this would reduce the borrowing rates for the weaker countries but increase them for stronger countries.

A rapid rise of bond rates for the weaker countries was a key factor in driving Greece and Ireland to obtain rescues from the European Union and IMF, and has put severe pressure on Portugal and Spain.

The French source said: "Today, we have an arrangement which has been accepted by all of the European countries in the Eurogroup, which is the subject of an agreement of support between governments in case of crisis, with a permanent mechanism, which functions under precise rules, an agreement on the involvement of the private sector under rules put into effect by the IMF."

The 16 members of the eurozone agreed on November 28 on the creation in 2013 of a permanent system for helping countries in financial difficulties, as had been done for Greece and Ireland, to succeed the existing, emergency and temporary support arrangements.

The new system has yet to be approved by all 27 members of the European Union when they hold an EU summit meeting in Brussels on December 16 and 17.

Analysts have been discussing for months whether and how the European Union should introduce reforms including institutional elements of mutual support between eurozone members.

They comment that such reforms would mark an important change in the architecture and principles of the EU-eurozone edifice, being a step towards a so-called "transfer union", implying a pooling or even some form of federal control of some economic policymaking and taxation.

© 2010 AFP

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