GERMANY HAS indicated that its support for so-called eurobonds is conditional on transferring greater sovereignty to Brussels, including oversight of national budgets.
Chancellor Angela Merkel has dismissed the eurobonds idea and will tell this week’s EU summit that pooling sovereign borrowing would cost Germany €17 billion annually.
However, finance minister Wolfgang Schäuble said yesterday the proposal might be palatable in Berlin in exchange for fundamental changes in how the EU does its business.
Mr Schäuble suggested yesterday that the mood in Germany might shift with a “discussion about how decision-making in Europe can be made more efficient”.
"In 10 years we will have a structure that will resemble far more what one describes as political union," he told Bild am Sonntagnewspaper.
Mr Schäuble has declined to respond to Luxembourg prime minister Jean-Claude Juncker, who accused Dr Merkel of “un-European behaviour” for dismissing his eurobonds idea.
Yesterday, the Luxembourg leader said he detected a difference in tone between the German leader and her finance minister.
Mr Juncker told German television that “Wolfgang Schäuble’s consideration of the proposal” was very close to his own position.
After days of mixed signals, observers in the German capital could not decide whether Dr Merkel and her finance minister disagree on eurobonds or whether they are pursuing a “good cop, bad cop” strategy to extract concessions from other euro zone members on greater political union.
As one-time Helmut Kohl cabinet members, they agree that backing eurobonds without winning further political concessions from other member states would compound the euro’s weakness.
“As long as we didn’t have common budgetary policy, we needed different interest rates as the only way to encourage sensible budget politics,” said Mr Schäuble.
“Different interest rates are the only tool to encourage sensible budgetary policy.
“Take that incentive away and the euro will no longer remain stable,” he said.
Berlin officials say that, because the eurobond proposal would require steps unpalatable for many countries – such as budget harmonisation – the eurobonds proposals is an academic proposal.
Mr Schäuble’s weekend remarks suggest that, on this point, Berlin is happy to be proven wrong. Figures leaked in Berlin forecast that eurobonds would have an interest rate of 3.31 per cent.
Compared to the current 1.73 per cent interest on German bunds issued worth €1.05 trillion, that would push German borrowing up by € 17 billion annually.
According to calculations by the Frankfurter Allgemeine newspaper, this price hike would hit the half of German sovereign debt up for refinancing before the end of 2013, an election year.
Warnings about an explosion in the cost of borrowing are a sensitive point in Germany: the euro crisis pushed up the cost of German borrowing by 0.2 percentage points in the last week.
A broad front against eurobonds is taking shape.
Leading German economists have dismissed the plan while, in an open letter to Dr Merkel, leading family-owned companies have warned that “harmful” eurobonds would constitute “a misunderstood offer of help”.
Dr Schäuble has dismissed talk of members leaving the euro zone, warning of “unforeseeable consequences with the departure of even one of the smaller countries”.
“Looking at the consequences of the Lehman collapse, I’d say we shouldn’t make the same mistake twice,” he said.
