Rescue fund already a eurozone bond in kind, say Belgians

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The European Union's outgoing Belgian presidency suggested Thursday that the eurozone was already well down the road toward the issue of controversial joint eurozone government bonds.

"If you look at the (emergency rescue) facility and the mechanism, in fact it's a lot of eurobonds, because we are organising a guarantee coming from different member states and we have an average of interest rates," Belgian Finance Minister Didier Reynders said.

Luxembourg Prime Minister Jean-Claude Juncker is pushing the idea of so-called E-bonds as a way of formally evening out strengths and weaknesses among individual members of the soon-to-be 17-state single currency area at the heart of the EU.

Juncker told AFP this week he would again raise the issue of joint eurozone bonds a summit of EU leaders despite a refusal led by Germany and some of its partners even to examine his initial proposal at talks between eurozone finance ministers earlier this month.

Reynders, who has chaired relentless EU talks on the debt crisis since July, says Juncker's plan is "the begining of a discussion" in the open on something that exists already in kind.

"It's higher than in Germany but it's lower than in Ireland and Greece," he said of the interest rates applied to funds going into the rescue facility. "So we are starting the process, and in the end maybe we will have eurobonds."

When Greece nearly went belly-up earlier this year after years of fancy accounting, the EU decided to pool resources to stop markets betting that a given eurozone territory may default.

They created a fund, which combined guarantees that enabled loans to struggling partners, and set about reinforcing common rules that governments were supposed to follow religiously.

But markets simply switched to other pressure-points in the eurozone chain, so Greece gave way to Ireland, and in turn Portugal and Spain saw their borrowing rates rise, with Belgium and Italy also considered increasingly risky states.

Juncker says solidarity between eurozone governments, based on their use of the same currency within a tariff-free market notionally open to all participants, means all eurozone governments could be given equal treatment.

But Germany argues that issuing joint bonds would only encourage less-rigorous states to take advantage of credit ratings enjoyed by stronger partners when trouble hits.

Experts said Berlin would end up paying more to borrow itself.

Following an implosion of the global financial system that triggered the world's worst recession since the 1930s, weak economic recovery accentuated fears over high debts in Europe following boom decades fuelled by cheap credit.

And so money markets, which like the look of emerging economies in Asia, the Middle East or Latin America, have put a squeeze on countries within a currency union that has a shared central bank but no shared government.

Reynders is among a group that advocates raising the current 440-billion-euro European Financial Stability Facility to reinforce these common guarantees, there remains plenty of opposition.

"It's too soon to talk about this," the Czech Republic's foreign minister Karel Scwharzenberg said of the joint E-bonds plan.

"There is a worry," stressed Swedish Prime Minister Fredrik Reinfeldt, that "countries with good economic standards, fiscal stablity, ... might see rising interest rates."

© 2010 AFP

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