Eurobonds wrong answer to debt, warns Merkel

Germany has renewed its opposition to growing calls for a move towards bonds that are jointly issued by eurozone members, with the German Chancellor, Angela Merkel, saying that so-called eurobonds were "exactly the wrong answer" to the currency union's sovereign debt crisis.

The rejection comes after a fortnight of turmoil on world markets, with investors anxious about what they see as the lack of political will to solve the eurozone debt crisis.

Last week also saw the Wall St investment bank Morgan Stanley highlighting Europe's "slow and insufficient response to the sovereign crisis" as one of the reasons for a downgrade of its economic growth forecasts.

But Merkel has rebuffed the clamour for eurobonds as a solution to the Continent's problems.

"They lead us to a debt union and not a stability union," she told German public television.

Instead, Merkel said Europe needed to move towards more economic co-operation.

"The eurozone has to work even more closely together but we also have to work together closely within the Europe of 27," she said.

"Our currency is not substantiated by a political union. Now the task is to make the euro strong through more economic co-operation and, especially, more commitment."

Earlier, her finance minister, Wolfgang Schuble, had also opposed the idea. "As long as we don't collectivise financial policy, we also cannot have a uniform interest rate level. The different rate levels are the incentive to run a solid economy or the punishment if you are not running it properly," he said.

Merkel's resistance echoed her stance at talks with the French President, Nicolas Sarkozy, last week.

On the other side of the divide, the Belgian finance minister, Didier Reynders, has backed the call for eurobonds, an idea also supported by Italian counterpart Giulio Tremonti, who was one of the first proponents of the idea to issue joint debt.

In addition to concerns about the implied loss of sovereignty, Germany's opposition stems from its fear of the higher interest rates that would land at its door, even as common debt offers some respite to the troubled, debt-laden countries on Europe's southern periphery.

In Italy, meanwhile, Senate committees began working yesterday on a €45.5 billion ($79.8 billion) austerity package outlined by Prime Minister Silvio Berlusconi during the weekend, that reneges on his promise to "never put the government's hands in the pockets of citizens".

The billionaire media mogul announced a "solidarity" tax of an extra 5 per cent on income over €90,000 and 10 per cent over €150,000.

The measures also include closing down local governments of towns with fewer than 1000 citizens, speeding up the timetable for raising women's retirement age and pledging to work for a constitutional amendment to require a balanced budget.

But cries are rising from ordinary Italians and some politicians that the government cut its own fat. Proposals include halving the number of Parliament's handsomely paid members, and selling off state real estate.

There have even been calls to break a sacred taboo by ending the property tax exemption on the Catholic Church's extensive holdings in Italy.

A cartoon on the front page of the Corriere della Sera newspaper depicted Berlusconi as a crestfallen king, crown askew, holding out a tray of state palazzi and villas with the sign "for sale."

- Independent, AP