THE GERMAN ambassador to Ireland has said his country’s government has not categorically ruled out eurobonds, or the pooling of debt, but does not believe they can present a “quick fix” to the crisis in the euro zone.
Dr Eckhard Lubkemeier said that Chancellor Angela Merkel, in an interview this week, had at no stage said a definitive no to euro bonds or pooling debt.
“There is a categoric no to starting with eurobonds,” he said. “The pooling of debt is not the quick fix. This is not the first step. It might be the last step in a process that will lead to deeper integration. [Dr Merkel] was not ruling it out forever.”
He said there had been solidarity in the context of pooling debt already, demonstrated by the evolving role of the ECB (for which Germany is liable for 27 per cent of its commitments) and the two bailout mechanisms, the European Financial Stability Facility and the European Stability Mechanism.
Dr Lubkemeier was responding to questions at the end of a lecture he delivered in Trinity College Dublin yesterday entitled Never Waste a Good Crisis: Why Europe Will Prosper.
He put forward three reasons for the crisis: high levels of public and private indebtedness; divergent competitiveness between member states which caused imbalance; and the “too big to fail” or “too interconnected to fail” syndrome.
On the latter he said that when the crunch came taxpayers had to bail out systemically important institutions because letting them fail was too risky.
“The magnitude of the risk was unknown. Nobody knows how many dominos would fall once the virus spread.”
He described the “design flaw” of the euro when it was established, namely that its focus was monetary, not fiscal or budgetary. The benefits were an absence of exchange rate fluctuations and low interest rates from the ECB.
He said the rationale for a strong euro was that it strengthened peace and democracy.