Tensions flare between euro leaders over bonds

THE interest on core Eurozone gilts was showing signs of a spreading crisis of confidence at Europe’s heart yesterday, as German 10-year yields spiked to a seven-month high at three per cent.

The pressure is telling on the region’s leaders, with Luxembourg Prime Minister Jean-Claude Juncker lashing out at German chancellor Angela Merkel for what he called her “un-European manner”.

Regarding Merkel’s comments that issuing single, region-wide Eurozone bonds (or “E-bonds”) would not be legal under current treaties, he retorted: “The proposal is being rejected before it has been studied. Germany’s thinking is a bit simple on that.”

A German official responded coolly: “It certainly doesn’t help anyone when the individual players call each other ‘un-European’.”

Merkel has provoked growing anger among her Eurozone allies by rejecting E-bond proposals and repeatedly suggesting that sovereign bondholders should be on the hook for bailout costs.

Her rhetoric, designed to play to populist discontent at home about the cost of bailing out indebted states, has raised concerns among officials that conflicting interests at the Eurozone’s core are fraying its political union.