ECB economist rejects mooted eurozone bonds

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The European Central Bank's chief economist Juergen Stark rejected Tuesday the idea of a common euro bond for the 16-nation region, saying each member was responsible for their budgets.

"Each country must be responsible for its own debt," Stark told the German daily Sueddeutsche Zeitung in reference to the issue of whether the eurozone should issue a common bond to obtain lower rates for members with weaker credit ratings.

The head of the eurogroup of finance ministers, Jean-Claude Juncker of Luxembourg, has called for such a bond, as has Italian Finance Minister Giulio Tremonti.

German Chancellor Angela Merkel has rejected the idea however, saying it would weaken the incentive for states with troubled finances to get their house in order, and the Netherlands is opposed to the idea as well.

Such a development would raise the cost of borrowing for Germany, which obtains the lowest rates among eurozone countries on government bond markets as a result of its fiscal discipline.

Stark stressed that the eurozone crisis was "not a monetary crisis, but a public finance crisis," and said European political leaders must take bolder steps to reinforce the discredited EU Stability and Growth Pact that is supposed to enforce financial discipline in the eurozone.

"What has been proposed until now cannot be the final word," he said.

© 2010 AFP

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