CHANCELLOR ANGELA Merkel has warned that Europe is in a race against time – and the financial markets – to solve the euro zone crisis with no place for “smoke and mirrors” solutions involving mutualised debt.
In a Bundestag address, Dr Merkel made her most explicit embrace yet of growth measures for struggling European economies while simultaneously warning that Germany’s crisis-fighting resources were not unlimited.
Dr Merkel’s speech was delivered on two levels. She told Bundestag MPs and the domestic audience that, with “all eyes on Germany”, she would not agree to share debts run up in other European countries. For the foreign audience, meanwhile, she insisted that German rejection of a series of crisis-fighting proposals was the mark of a country anxious to embrace, not shirk, its European responsibilities.
And so, as Spanish bond yields passed the seven per cent mark yesterday, viewed by analysts as unsustainable, Dr Merkel stood firm on her refusal of jointly-issued eurobonds. Pooling sovereign debt to ease market concerns about some member states’ finances was “counterproductive”, Dr Merkel said, and based on the same flawed, debt-driven logic that caused the crisis.
“We would repeat the political mistake of the euro’s introduction, when the markets gave us nearly identical interest rates,” she said. “Thus we would not reach the problem at its root, but merely conceal problems in the short term.”
Eurobonds would just kick the problem down the road, she argued, risking another flare-up that could overwhelm even the euro zone’s largest member.
“Germany’s strength is not limitless,” she said. “Thus our particular responsibility as largest economy in Europe lies in gauging credibly our own strength and putting it to work for Germany and Europe. That will only succeed when we don’t overestimate our powers.”
A day after the opposition Social Democratic Party visited French president François Hollande in Paris, Dr Merkel insisted that the twin pillars of growth measures and budget consolidation had always been at the heart of euro zone rescue measures – and all troika programmes.
“Both pillars belong together in the European crisis, both pillars are indispensable,” she said. “But both pillars rest on the conviction that we can only overcome the crisis by tackling it at its root: massive indebtedness, loss of competitiveness in some states and the failure of Europe to adhere to its own rules.”
For the German leader, the Spanish crisis is a worrying vindication of her belief that money will not solve the euro zone crisis. ECB injections of cheap loans and promises of a €100 billion bailout have provided only momentary relief to the problems of Spain’s financial sector, not flagged by European bank stress tests.
The lesson, she suggested, was not more money but greater oversight by the European Central Bank of national banking sectors and spending of EU funds.
“We need a credible banking regulator and we need clear judgment at EU level where structural funds can best be invested to promote growth, competitiveness and employment,” she said.
She told Bundestag deputies all successful European measures agreed to date – economic reforms, bailout fund boosts and the fiscal treaty – were aimed both at crisis-fighting and “deepening the [European] union”.
“The fiscal treaty is a first step to greater control at European level,” she said. “Liability and control are interlinked; all other discussions only lead to pseudo-solutions.” After another round of horse-trading with the opposition yesterday, the government said talks were on course for Germany to ratify the fiscal treaty – and ESM bailout fund – on June 29th, over a month later than planned.
