ECB governor backs 'eurobonds' limited to top nations
Luxembourg's Yves Mersch, a European Central Bank governor, expressed support on Thursday for the creation of unified bonds in the eurozone but only among nations with top-notch credit ratings.
"For me, the eurobond would be imaginable among countries with AAA ratings," Mersch, head of Luxembourg's central bank, said during a conference organised by BZ Bank in the Grand Duchy.
But earlier on Thursday, ECB executive board member Lorenzo Bini Smaghi said eurobonds risked increasing public debt and that a better way of fighting the debt crisis would be an improved version of the European Financial Stability Fund (ESFS).
"Without stringent constraints, the eurobonds risk favouring fiscal policies that, on average, are more expansionary, and a higher debt, whose cost is also shared among the more disciplined countries," Smaghi said in a speech in Rome.
Eurobonds, favoured by Italy and a number of top European officials, would be bonds issued on behalf of the entire eurozone, rather than by specific member countries, thereby pooling the borrowing risks and reducing borrowing rates for countries under pressure over their public finances.
Mersch, who sits on the ECB governing council in his capacity as head of Luxembourg's central bank, said a creation of eurobonds would have to come with the proviso that a nation would have to repay its entire debt as soon as it loses its AAA status.
Although he stressed he was not an "ardent support" of such joint bonds, Mersch said they could provide "the embryo of a stability-oriented fiscal union."
Six of the eurozone's 17 nations carry the top triple-A rating issued by international credit ratings agencies: Germany, Austria, Finland, France, Luxembourg and the Netherlands.
European governments are divided over the idea of issuing joint bonds, with German Chancellor Angela Merkel repeating on Thursday in Frankfurt that eurobonds are "absurd."
European Commission president Jose Manuel Barroso revived the debate on Wednesday when he confirmed that his services would soon present options for creating eurobonds.
Market analysts have argued that eurobonds could be a quick way to resolve the eurozone's unrelenting debt crisis.
The idea is for eurozone states to band together to issue debt, levelling out interest rates across the single currency area.
But Germany, which can borrow money on the bond market at the lowest rates in the eurozone, is vehemently opposed, arguing that it would discourage profligate governments from keeping budgets under control.
© 2011 AFP