Germany defends opposition to euro bond proposal

By Erik Kirschbaum

BERLIN (BestGrowthStock) – Germany denied on Monday that its opposition to joint euro sovereign bonds was due largely to the extra multi-billion euro borrowing costs it might face.

Chancellor Angela Merkel’s spokesman Steffen Seibert said the government has made no official calculations on extra borrowing costs if euro bonds were introduced, dismissing a reported estimate of 17 billion euros ($22 billion) a year.

“The government’s opposition is not due to any extra costs that it could mean for Germany but due to EU treaty problems, and secondly it would take away incentive for countries to deal with their structures and reforms,” Seibert told reporters.

The Frankfurter Allgemeine Zeitung newspaper said on Monday that it had obtained a government paper, giving the estimate, which Merkel planned to use at an EU summit this week.

“There is no official paper on that,” Seibert said.

Merkel, with backing from France, has opposed a proposal pushed by Eurogroup President Jean-Claude Juncker and Italian Finance Minister Giulio Tremonti for what have been dubbed E-bonds — joint euro zone sovereign debt issues — to help resolve the debt crisis in the 16-nation currency bloc.

“Irrespective of what it might cost, the government is in essence against the creation of any kind of a ‘transfer union’,” said Christoph Weill, a Commerzbank economist. “A joint bond would be a first step in that direction.”

He noted similar grumbles in Germany over a system that obliges the financially stronger of the country’s 16 federal states to share their wealth with poorer states — that, too, is seen as taking away incentive for poorer states to cut costs.

Juncker has criticized Germany’s resistance to joint bonds as “un-European.”

Michael Leister, interest rate strategist at WestLB, said it was hard to predict how much E-bonds might raise German costs, but 17 billion euros is a possible figure.

“The main reason that the government is opposed to euro bonds is because of political sensitivities,” Leister said. “Political leaders want to survive the next election. There’s no majority for euro bonds or any more help right now.”

(Editing by Ruth Pitchford)

Germany defends opposition to euro bond proposal