Germany and France to clash over eurobonds
FRENCH President Francois Hollande faces his first major negotiating test at today’s informal EU summit, as he wants Germany to back jointly guaranteed eurobonds, lowering weak governments’ borrowing costs.
European Council president Herman van Rompuy convened the summit to bash out a common position among leaders on plans to “boost growth and jobs across the EU”.
With much of the Eurozone in recession, Greece’s ongoing political crisis and worries over Spain’s banks, uncertainty is growing over the future of the euro.
Yet this week a senior German official called the bonds “the wrong prescription at the wrong time”.
Although Spanish Prime Minister Mariano Rajoy and Italian leader Mario Monti have insisted any support through German-backed bonds would not be used as an excuse to relax reforms, Berlin is unconvinced.
Chancellor Angela Merkel has long maintained only market reforms to boost competitiveness will solve the crisis permanently.
Hollande, backed by Italy, Spain and the European Commission, believes jointly issued eurobonds will relieve the pressure on weak governments, cutting their borrowing costs and ending the imminent threat to their use of the currency. He also wants to relax the fiscal compact, letting countries spend more in the hope of boosting GDP growth in the short term.
Additional infrastructure spending is also on the agenda, possibly through the use of project bonds and the European Investment Bank funds.
Furthermore, as Greece’s election next month could see the election of anti-bailout party Syriza, discussions are also expected to cover the Eurozone’s response to any slippage in the country’s fiscal programme.