France says e-bonds putting cart before the horse

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Fiscal and economic consolidation of eurozone members is needed before considering bonds backed jointly by the entire single currency area, French Finance Minister Christine Lagarde said Monday.

Allowing eurozone members to issue bonds jointly backed by 17-nation monetary union, variously referred to as e-bonds or eurobonds, is one of the ideas that have been floated to help ease the debt crisis some countries face.

"If you do that, you put once again the cart before the horse," Lagarde said in an interview on the financial news channel CNBC.

Eurozone heavyweights France and Germany have led opposition to the idea, which they have argued would reduce the pressure on governments to undertake needed fiscal adjustments.

"If you start putting in place eurobonds what you do in effect is you dilute the strength, the solidity of some of the members without having integrated or consolidated fiscally and economically," said Lagarde.

"I think we need to do that first, then we can think about the eurobonds," she added.

The European Financial Stability Facility (EFSF), the main EU component in the 750-billion-euro ($1 trillion) international safety net it put together last year with the IMF, is expected to issue its first bonds this week to raise funds to lend Ireland as part of its rescue.

Debate has recently shifted to enlarging the size and the remit of the EFSF to buy the bonds of debt-stressed eurozone members, a role that the European Central Bank has reluctantly taken on to support the single currency zone.

© 2011 AFP

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