The carrot and the stick: that’s one way of summing up the European Commission’s proposals to resolve the debt crisis. The carrots are common bonds with the same interest rates for all euro countries – the so-called Euro Bonds; that is, liabilities pooled among the member states.
The stick: tighter controls and tougher sanctions on those who break the rules on debt. With this programme, one would think, Commission President Barroso could score points with Merkel in Berlin.
Far from it. Although the Eurobonds have been spontaneously rechristened “stability bonds” for the occasion, and despite the fact that the sweet carrots will be served up only when the bitter medicine of austerity has been swallowed, from Berlin there only comes back a dull No.
Even the debate over Eurobonds is “inappropriate,” believes Merkel, who commissioned the feasibility study into the bonds herself. The debate is coming at just the right time. In the meanwhile, the markets have begun attacking not only over-indebted countries, but countries like Austria and the Netherlands as well. Protecting these important partners is also in Germany’s interest.
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Many will say Germany is to blame
But for Merkel, only discipline and obedience matter. The Iron Chancellor seems to be ignoring the fact that more and more economists are convinced that the crisis can be overcome only with both common bond purchases and backing from the ECB.
She thus risks not only new controversy with Barroso, who has long been annoyed about the faltering German course, but risks isolating Germany even more. Already Merkel can count on only a handful of supporters in Paris, The Hague and Helsinki. France's President Sarkozy has already distanced himself from the dispute over the ECB.
Now even Germany itself is looking vulnerable: the federal budget for 2012 doesn’t quite tally with the tough austerity Merkel preaches. And on Wednesday, for the first time ever, the markets recognised doubts in the creditworthiness of Germany and largely turned down the otherwise popular federal bonds.
In addition, there are strong indications that the debt crisis is deepening. If in the end the eurozone does indeed begin to tumble and Merkel blocks all rescue attempts, many will say Germany is to blame – and they would be right.
Translated from the German by Anton Baer
First upset for Berlin
"Germany packs up its bonds," headlines Die Welt the day after a disappointing sale of German bonds on the financial markets. The newspaper says the country faces a problem that its European partners aren’t familiar with: the interest rate on German bonds is less than two percent (1.98%), a yield too low to draw in investors. As a result, Germany has been able to sell no more than a third of its bonds at its proposed price. “A total disaster,” say some analysts; an episode, say others, who have no doubt in Berlin’s ability to find refinancing on the markets.
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