Merkel: no quick solution to crisis

By GEIR MOULSON,Associated Press Updated at 2012-06-27 15:57:11 +0000


BERLIN (AP) — German Chancellor Angela Merkel on Wednesday brushed aside the latest push to pool European debt, arguing that it would be "economically wrong and counterproductive" to make such a move before governments can be made to comply with budget rules.

In the run-up to another European Union summit, Merkel is facing mounting pressure to soften Germany's fierce resistance to jointly issued eurobonds or other forms of debt pooling.

Though eurobonds could reduce borrowing costs for eurozone stragglers, like Spain and Italy, they could increase them for Germany and some others. Berlin worries about being liable for other countries' debts without being able to ensure that they push through economic reforms.

Top European officials have drawn up a plan ahead of the summit, which starts Thursday, that proposes a "medium term" move towards eurobonds, as well as the creation of a banking union with a single authority. They also called for the 17 euro countries to surrender more control over their national budgets, in an apparent nod to German concerns.

Speaking to Germany's Parliament, Merkel made clear that wasn't enough. She noted that the plan called for pooling debt first and only then enforcing greater budget controls.

"I fear that, at this summit, there will again be much too much talk about all sorts of ideas for common liability and much too little about improved controls and structural measures," she said.

"Quite apart from the fact that instruments such as eurobonds, euro bills, debt redemption funds and many others are constitutionally impossible in Germany, I consider them economically wrong and counterproductive," Merkel added.

She said that only when sufficient budget supervision is ensured could any such measures even be considered. With European capitals wary of giving up sovereign powers, that could take years.

Ahead of the summit, Merkel is to meet in Paris late Wednesday with French President Francois Hollande, who has promoted eurobonds as a way out of Europe's debt crisis.

Facing criticism of her austerity-led approach to resolving the crisis, Merkel has talked increasingly of fostering economic growth over recent months. Last week, she agreed with Hollande and her Italian and Spanish counterparts to push for a growth package worth up to €130 billion ($162 billion) at this week's summit.

But she has stuck firmly to her insistence that European countries must tackle their economies' uncompetitiveness and heavy debts in a step-by-step process — and that they can't make the continent's problems go away in one stroke.

On Wednesday, she opened her speech by dismissing expectations that the EU summit Thursday and Friday would bring the crisis to an end.

"Because I know the expectations and hopes that are pinned on this summit, I will repeat right at the start what cannot be said often enough," Merkel said. "There is no quick solution and no simple solution. There is no one magic formula ... with which the government debt crisis can be overcome in one go."

She said Europe needed to solve its problems step by step. "Anything else is condemned to fail from the start."

When Merkel returns from the summit, lawmakers are to vote Friday on approving her cherished European budget-discipline pact and on the eurozone's permanent rescue fund.

Merkel last week struck a deal with Germany's mainstream opposition parties to secure the necessary two-thirds majority for the budget-discipline pact. The opposition extracted a promise to push for a tax on financial transactions, but the government rejected its call for a debt-redemption fund, which would involve a form of debt pooling.

"We are further than ever today from a Europe of stability, solidarity and confidence," said Frank-Walter Steinmeier of the main opposition Social Democrats.

"That has to do with you and your government as well, Mrs. Merkel ... you haven't been part of the solution so far; you are and were part of the problem."