BERLIN (Reuters) - The German government no longer rules out agreeing to the issuance of euro zone bonds as a measure of last resort to save the single currency, conservative newspaper Welt am Sonntag reported on Sunday.
Even though Finance Minister Wolfgang Schaeuble and Economy Minister Philipp Roesler again spoke out against euro zone bonds and debt collectivisation, Welt am Sonntag reported the German government is nevertheless considering that and other measures.
“Preserving the euro zone with all its members has absolute top priority for us,” according to a government source quoted in the newspaper under the headline: “Government no longer excludes European transfer union and joint euro bonds as last resort.”
The newspaper, traditionally close to Chancellor Angela Merkel’s Christian Democrats (CDU), indirectly quoted the source adding: “In case of emergency, one would thus even be prepared to accept the introduction of a ‘transfer union’ and at the end of the day even joint euro zone bonds.
“Without these euro bonds, it might no longer be possible to save the euro zone,” the newspaper continued, further quoting the source indirectly. “The path we’ve taken so far with multi-billion rescue packages for financially struggling states is beginning to reach its limits.”
A government spokesman in Berlin declined to comment on the report in Welt am Sonntag but instead pointed to the Schaeuble interview in Der Spiegel news magazine published on Sunday.
Schaeuble said Germany remains against any collectivisation of euro zone governments’ debt and creating common euro bonds is impossible while countries run separate economic policy.
“It still stands: there will be no collectivisation of debt and there will be no unlimited support,” he said. “There are certain support mechanisms that we are developing further — with strict conditions.”
“The member states that need our solidarity must reduce their deficits and reform their economies — with at times very tough measures,” he said.
Der Spiegel said Schaeuble also ruled out the issuance of eurobonds unless certain hurdles are removed.
“I rule out Eurobonds for as long as member states conduct their own financial policies and we need differing interest rates so that there are possibilities of incentives and sanctions to force fiscal solidity,” he said.
“Without that kind of solidity, there is no foundation for a joint currency,” Schaeuble added.
Economy Minister Roesler also spoke out against euro zone bonds in an interview in Handelsblatt newspaper on Monday: “I consider euro bonds to be the wrong approach in a Europe in which every member state should take responsibility for itself.”
Pressure is nevertheless growing on euro zone leaders to take a more radical approach to the euro zone’s debt crisis ahead of a potentially vital meeting of German Chancellor Angela Merkel and French President Nicolas Sarkozy next week.
Italian Economy Minister Giulio Tremonti renewed his call for a collective euro zone bond on Saturday.
Tremonti returned to proposals for jointly issued bonds that would effectively make individual governments’ debt a common burden, saying they were the “master solution” to the euro zone debt crisis. “We would not have arrived where we are if we had had the euro bond,” he said on Saturday.
The comments underline the sharp divisions hampering efforts to coordinate a response to the euro zone debt crisis, which escalated dramatically last month as markets turned their fire on Italy, one of the bloc’s most heavily indebted countries.
What is at stake was highlighted by a new poll for the Bild am Sonntag newspaper on Saturday which showed 31 percent of Germans believe the euro will be gone by 2021.
The idea of euro bonds was also dismissed by Deutsche Bank chief economist Thomas Mayer. He told Deutschlandfunk radio that and raising the European Financial Stability Fund (EFSF) could lead to the end of the European Monetary Union (EMU).
“I believe such considerations would be poison pills for the EMU,” Mayer said. “It would violate a fundamental democratic principle if the EFSF were boosted to several trillion euros or euro zone bonds were introduced.”
He added: “If at the end of the day German, Dutch and Finnish taxpayers are going to be held responsible for decisions made in other parliaments as a result of raising the size of the EFSF or introducing euro bonds, that will lead to a political collapse of the EMU. That is not an option.”
Reporting by Erik Kirschbaum; Editing by Mike Nesbit