“It makes no sense to want to fix everything with eurobonds or other similar ‘solidarity’ instruments” which would “only aggravate the crisis,” Merkel told an electrical industry conference in Berlin.
The euro area’s long-running sovereign debt crisis “will not be resolved with a miracle cure but will require a great deal of hard work” in the form of fiscal consolidation and structural reforms, she said.
Debt-wracked countries could make a start by “not spending more than they take in in revenues,” Merkel argued.
The view was echoed by German Foreign Minister Guido Westerwelle who told a joint press conference with visiting British Deputy Prime Minister Nick Clegg that eurobonds created the “wrong impulse” for solving problems of debt and a lack of competitiveness.
“We think we cannot solve a debt crisis by making it easier to take up new debt,” he said.
For his part, Clegg warned against getting “fixated by eurobonds as such” and called for “a new grand bargain, between North and South, between creditor and debtor countries, between exporting and consuming countries.
“My point is, you can’t do that through austerity alone, there are many other ways. You can have more monetary activism from the European Central Bank, you can have transfers of money … or you could mutualise debt in the long run,” he told reporters.
France’s new President Francois Hollande is spearheading a drive for eurobonds, in effect pooling the debt of eurozone countries, in order to raise fresh debt funding.
But Germany is firmly opposed to such a move, arguing it takes away the pressure for reform in spendthrift countries and also undermines market discipline.
Berlin says using eurobonds now, before member states seal in stone a shared fiscal and economy policy, would only increase the bloc’s total debt burden while increasing its own borrowing costs.
France and some other eurozone states say that eurobonds could fund desperately needed growth policies after years of austerity have pushed the economy into recession.