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Merkel Says Euro Bonds Are Absolutely Wrong

Credit: Reuters/Thomas Peter

By Andreas Krner

Thursday, September 15, 2011, 7:12am EDT

FRANKFURT (Reuters) -

German Chancellor Angela Merkel bluntly rejected euro zone bonds on Thursday as a solution to the currency area's sovereign debt crisis, saying that "collectivizing debts" would not solve the problem.

The European Union's top economic official meanwhile said he expected international lenders to be able to recommend by the end of the month releasing a vital next tranche of aid for Greece, warding off the threat of an imminent default.

Spain and France both found good demand for their bonds at auctions, but while Paris' short-term borrowing costs fell, Madrid had to pay dearly to sell longer-term debt despite support from the European Central Bank in the secondary market.

Speaking a day after the head of the European Commission raised financial market hopes by pledging to present options soon for issuing such common bonds, Merkel said: "Eurobonds are absolutely wrong.

"In order to bring about common interest rates, you need similar competitiveness levels, similar budget situations. You don't get them by collectivizing debts," she said in a speech at the Frankfurt auto show.

The chancellor, facing rising public opposition to euro zone bailouts, said there was no quick and easy way out of the debt crisis, only a step-by-step process of individual countries putting their fiscal house in order.

Many investors see joint debt issuance as the best way out since it would reassure markets that Europe's strongest economies were taking responsibility for weaker states.

But Germany, the euro zone's main paymaster, argues that it would raise the borrowing costs of virtuous countries and remove the incentive for profligate states such as Greece or Italy to clean up their public finances.

European Central Bank policymaker Lorenzo Bini Smaghi highlighted that risk in a speech in Rome on Thursday.

"Without stringent constraints, eurobonds risk favoring fiscal policies that, on average, are more expansionary, and a higher debt, whose cost is also shared among the more disciplined countries," he said.

On a conference call with Greek Prime Minister George Papandreou on Wednesday, Merkel and French President Nicolas Sarkozy voiced their support for keeping Greece in the euro zone and continuing financial assistance provided it sticks strictly to austerity measures to meet its fiscal targets.

EU Economic and Monetary Affairs Commissioner Olli Rehn said he now expected an EU/ECB/IMF "troika" of inspectors to be able to complete their review of Greece's fiscal targets by the end of the month.

"Over the last weekend, the Greek government took very important decisions that go a long way to meeting the fiscal target for this year," Olli Rehn told a news briefing.

"It is now essential that they go all the way and convince their partners so that they can expect a decision to be taken by the euro area and the IMF in time before the next hurdles of financing will emerge," he said.

Separately, the Commission said economic growth in Europe was slowing down and could come close to a halt at the end of the year partly because the debt crisis will hit household consumption and investment.

"The outlook for the European economy has deteriorated. Recoveries from financial crises are often slow and bumpy," Rehn said, rejecting any return to stimulus spending.

There were some signs that political support in Germany for continuing aid to Greece was rallying after weekend comments about the possibility of a Greek default and exit from the euro area spooked markets.

Michael Meister, deputy parliamentary leader of Berlin's governing conservatives, said Athens was doing its utmost to deliver on its fiscal targets and it would be "absolutely fatal" for Greece to leave the euro zone.

He also voiced confidence that parliament would ratify an increased role for the euro zone's EFSF rescue fund on September 29 after votes in the Austrian and Slovak parliaments were delayed by internal opposition.

German Vice-Chancellor Philipp Roesler also softened earlier comments, stressing he did not favor Greece leaving the euro zone and his party's position was close to Merkel's.

(Writing by Paul Taylor; editing by Janet McBride)

French, German leaders believe Greece's future in eurozone

PARIS, Sept. 14, 2011 (Xinhua) --

French President Nicolas Sarkozy and German Chancellor Angela Merkel said they were convinced that "the future of Greece is in the eurozone," according to a statement issued by the Elysee Palace after a telephone conference among leaders of Greece, France and Germany.

Stressing the importance to conform with the eurozone agreement settled on July 21, Sarkozy and Merkel said they attached great importance to the Greek government's implementation of the "strict and effective" recovery program supported by other eurozone members and the International Monetary Fund (IMF).

As a pre-condition to install new bailout package for debt-ridden Greece, Germany-led eurozone bloc and the IMF has demanded Greek government to implement a series of austerity measures in order to convince the lenders on the solvency of the state.

"Greek Prime Minister confirmed the Government's absolute determination to take all necessary measures to implement all commitments," the statement added.

Sarkozy and Merkel are "convinced that the future of Greece is in the euro area," the statement stressed, saying the implementation of the commitments by Greece is not only essential for the state to have "a sustainable and balanced growth" but also able to "strengthen the stability of the euro area."

The fear over the contagion of a possible default by Greece has weighed down and unsettled European financial market for months. Last weekend, Greek government announced new set of austerity measures, including a two-year property tax, to cut deficit and make up revenue shortfalls after rounds of rescuing packages made little effect in restoring investors' confidence.

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