Merkel Again Rejects Euro-Zone Bonds - The Wall Street Journal

BERLIN—German Chancellor Angela Merkel said the path toward a fiscal union in Europe was irrevocable, and reiterated her rejection of common euro-zone-wide bonds and an increase to the euro zone's bailout facilities.
Euro-zone bonds "aren't suitable as a rescue measure," she told lawmakers Wednesday.
She spoke as the euro-debt crisis raged on, with Italy's borrowing costs at an auction Wednesday reaching a euro-era high on fears about the country's ability to raise funds at sustainable levels. In currency markets, the euro dipped as low as $1.2994—its lowest point since January.

Italy managed to sell its bonds off at auction but at record yields. Greece's economy is worse than expected and a deal with the IMF is becoming harder to achieve. Costas Paris and Matina Stevis discuss the politics of the crisis.

EU countries—except for the U.K.—reached an agreement at last week's summit to step up fiscal oversight in the euro zone, introduce automatic sanctions for governments flouting deficit rules and anchor balanced-budget amendments in national constitutions.
In remarks earlier in the day, Italian Prime Minister Mario Monti agreed that fiscal rigor is "essential" and that the deal will boost the credibility of public finances in the region. However, he made it clear he believed that more agreements would be needed, particularly on an agreement to mutualize debt liabilities, for the euro-zone sovereign-debt crisis to dissipate.
"The Italian government insisted heavily on euro bonds, which are not a back-door way to allow fiscal laxity but will boost growth," Mr. Monti said in remarks to the Italian Senate. He added that jointly guaranteed debt would deepen Europe's capital markets.
Mr. Monti added that Germany believed at the summit that the agreement on tougher fiscal-stability rules would be enough to calm financial markets—but not all other countries agreed.
In her remarks, Ms. Merkel said she regretted that the U.K. had declined to support European Union treaty change to allow closer economic policy coordination, but added that the U.K. was valued in many other areas. She warned of expectations for a quick fix to Europe's woes, and said overcoming the crisis may take years.
Despite concerns that the steps taken by last week's summit may not be enough to contain the crisis, Ms. Merkel remained firm in her rejection of collective euro-zone bonds, which she said wouldn't get to the root of the crisis.
The chancellor also reaffirmed that the combined ceiling for the currency area's current and future rescue fund shouldn't exceed €500 billion ($651.2 billion). Summit leaders had agreed to move forward the start date of the planned European Stability Mechanism, or ESM, that is supposed to supplant the temporary bailout facility by mid-2012.
Some countries at the summit wanted the permanent and temporary bailout funds to function side by side and were pushing for the €500 billion cap to be lifted. In the end, while the statement confirmed the two funds should run in tandem, it said the adequacy of the overall ceiling of the two funds would be reassessed in March.


Ms. Merkel said Wednesday that all members states, including Germany, in 2012 will need to start paying for a cash deposit of the ESM. Euro-zone countries are required to put down €80 billion in cash, with Germany providing about €22 billion of that, which it plans to do in yearly installments of €4.3 billion.
Separately, European Commission President José Manuel Barroso said the new "fiscal compact" designed to mend flaws in the single European currency's framework should be completed in the first six months of next year.
"We are going to hopefully conclude negotiations for a new fiscal compact during the Danish presidency," Mr. Barroso told the European Parliament. "The crisis is not yet behind us; there is a lot of work ahead."
Denmark takes over the European Union's six-month rotating presidency from Poland on Jan. 1.