The German Chancellor said the issuance of eurozone-backed bonds was “exactly the wrong answer” – despite warnings that it is the only move that will calm stricken markets.
Ms Merkel told German television yesterday: “The markets want to force us into doing certain things – and that we won’t do.” She added: “Politics cannot and will not simply follow the markets.”
Eurobonds, or the issuance of bonds backed by all 17 members of the eurozone, would lead Europe “into a debt union, not a stability union”, Ms Merkel said.
She said she was committed to the “extremely difficult task” of forcing countries to cut debt and boost growth as the way out of Europe’s sovereign debt crisis.
Traders had been hoping for Ms Merkel to soften her stance over eurobonds following the financial turmoil of last week.
Stockmarkets around the world plunged following indecision among Europe’s leaders and fears they are losing their grip on the sovereign debt crisis. Fears that the unsolved problems would trigger another banking crisis spread across global markets and were compounded by worries about the US economy.
In London, the FTSE 100 shed £73bn in value in just one week. At the close on Friday it was hovering at 5,040 – just above the psychologically vital 5,000 mark.
Yesterday President Barack Obama broke off to his holiday to concede that the economy was fragile. He said: “I don’t think we’re in danger of another recession, but we are in danger of not having a recovery that’s fast enough to deal with what is a genuine unemployment crisis for a whole lot of folks out there.”
Mr Obama said concerns about the American recovery and “headwinds’” from the debt crisis in Europe were contributing to investor concerns.
Traders have focused on eurobonds because many feel the other options being discussed in Brussels will not be sufficient to tackle the debt crisis.
Last week, Ms Merkel and French president Nicolas Sarkozy announced they would push for a financial transaction tax – a proposal that was met with fury in London which would be the worst-affected. Experts have warned the tax would not raise nearly enough to shore up the debt-laden economies of Italy and Spain.
When the second bail-out for Greece was unveiled last month, the leaders said the EU’s bail-out fund – the European Financial Stability Facility – would be open to other countries. But experts have said the fund would have to be increased by four times its current size to be effective.
Without political agreement, financiers have warned that traders will continue to flee equities in favour of safe havens. This weekend, Peter Hambro, founder of Petropavlovsk, the London-listed gold miner, warned the price of gold would continue to soar. He said: “Until a major country adopts a policy of balancing the budget, I do not think that the value of money will increase and may yet go down further. An ounce of gold may soon buy $2,500.”
The Telegraph
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