Merkel and Sarkozy team up against eurobonds

German Chancellor Angela Merkel and French President Nicolas Sarkozy on Friday presented a common front against eurobonds as a way out of the eurozone crisis, a week before an EU summit.

Merkel and Sarkozy team up against eurobonds
Photo: DPA

“Sharing interest rates and risks is not going to help us structurally,” Merkel told reporters at a joint news conference after talks with Sarkozy in Freiburg, southwest Germany.

“What is more important is more coherence in economic policy.”

Sarkozy agreed, adding that France and Germany had not been properly consulted about the idea, put forward by Luxembourg Prime Minister Jean-Claude Juncker and Italian Finance Minister Giulio Tremonti.

The idea would enable weaker countries in the 16-member currency bloc such as Portugal and Spain that have to pay high interest rates to borrow money to link up with stronger ones such as Germany and France.

In principle, this would reduce the borrowing rates for the weaker countries but increase them for stronger countries.

“Countries should be given responsibilities, not have them taken away,” Sarkozy said.

“I don’t think we were consulted before this idea was floated. If we had known about it before, perhaps we could have found a compromise,” Sarkozy said.

Juncker, also head of the Eurogroup of finance ministers, earlier in the week called Germany’s flat refusal “un-European,” prompting Berlin to accuse him of unsettling markets and creating a picture of European disunity.

The meeting attended by French and German ministers comes a week ahead of an EU summit at which the bloc’s 27 leaders are due to sign off on a new permanent crisis mechanism.

Merkel has said eurobonds would be in breach of the EU’s governing treaties and would weaken countries’ resolve to fix their public finances, something she sees as vital to overcoming the crisis.

“This meeting comes at an extremely important time,” the French European affairs minister, Laurent Wauquiez, told the daily Les Echos ahead of the Freiburg gathering.

“Europe is facing great challenges and foreign observers are looking to us to see to what extent the Franco-German partnership can take action.”

Despite growing criticism by European partners of an exclusive style of leadership, Wauquiez said France and Germany had been effective in the crisis.

“In the last year, on all the major issues that the crisis created, Nicolas Sarkozy and Angela Merkel have shown each time that they can hammer out common positions,” he said.

Ireland last month became the second eurozone member after Greece to seek a bailout, tapping a €750-billion temporary mechanism set up by the EU and the International Monetary Fund.

There are fears that rising borrowing costs might force other countries in the 16-nation eurozone, most notably Portugal and Spain, to follow suit.


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The Euro celebrates its 20th anniversary

The euro on Saturday marked 20 years since people began to use the single European currency, overcoming initial doubts, price concerns and a debt crisis to spread across the region.

The Euro celebrates its 20th anniversary
The Euro is projected onto the walls of the European Central Bank in Brussels. Photo: Daniel Rolund/AFP

European Commission chief Ursula von der Leyen called the euro “a true symbol for the strength of Europe” while European Central Bank President Christine Lagarde described it as “a beacon of stability and solidity around the world”.

Euro banknotes and coins came into circulation in 12 countries on January 1, 2002, greeted by a mix of enthusiasm and scepticism from citizens who had to trade in their Deutsche marks, French francs, pesetas and liras.

The euro is now used by 340 million people in 19 nations, from Ireland to Germany to Slovakia. Bulgaria, Croatia and Romania are next in line to join the eurozone — though people are divided over the benefits of abandoning their national currencies.

European Council President Charles Michel argued it was necessary to leverage the euro to back up the EU’s goals of fighting climate change and leading on digital innovation. He added that it was “vital” work on a banking union and a capital markets
union be completed.

The idea of creating the euro first emerged in the 1970s as a way to deepen European integration, make trade simpler between member nations and give the continent a currency to compete with the mighty US dollar.

Officials credit the euro with helping Europe avoid economic catastrophe during the coronavirus pandemic.

“Clearly, Europe and the euro have become inseparable,” Lagarde wrote in a blog post. “For young Europeans… it must be almost impossible to imagine Europe without it.”

In the euro’s initial days, consumers were concerned it caused prices to rise as countries converted to the new currency. Though some products — such as coffee at cafes — slightly increased as businesses rounded up their conversions, official statistics have shown that the euro has brought more stable inflation.

Dearer goods have not increased in price, and even dropped in some cases. Nevertheless, the belief that the euro has made everything more expensive persists.

New look

The red, blue and orange banknotes were designed to look the same everywhere, with illustrations of generic Gothic, Romanesque and Renaissance architecture to ensure no country was represented over the others.

In December, the ECB said the bills were ready for a makeover, announcing a design and consultation process with help from the public. A decision is expected in 2024.

“After 20 years, it’s time to review the look of our banknotes to make them more relatable to Europeans of all ages and backgrounds,” Lagarde said.

Euro banknotes are “here to stay”, she said, although the ECB is also considering creating a digital euro in step with other central banks around the globe.

While the dollar still reigns supreme across the globe, the euro is now the world’s second most-used currency, accounting for 20 percent of global foreign exchange reserves compared to 60 percent for the US greenback.

Von der Leyen, in a video statement, said: “We are the biggest player in the world trade and nearly half of this trade takes place in euros.”

‘Valuable lessons’

The eurozone faced an existential threat a decade ago when it was rocked by a debt crisis that began in Greece and spread to other countries. Greece, Ireland, Portugal, Spain and Cyprus were saved through bailouts in return for austerity measures, and the euro stepped back from the brink.

Members of the Eurogroup of finance ministers said in a joint article they learned “valuable lessons” from that experience that enabled their euro-using nations to swiftly respond to fall-out from the coronavirus pandemic.

As the Covid crisis savaged economies, EU countries rolled out huge stimulus programmes while the ECB deployed a huge bond-buying scheme to keep borrowing costs low.

Yanis Varoufakis, now leader of the DiEM 25 party who resigned as Greek finance minister during the debt crisis, remains a sharp critic of the euro. Varoufakis told the Democracy in Europe Movement 25 website that the euro may seem to make sense in calm periods because borrowing costs are lower and there are no exchange rates.

But retaining a nation’s currency is like “automobile assurance,” he said, as people do not know its value until there is a road accident. In fact, he charged, the euro increases the risk of having an accident.