ECB chief economist opposes eurobonds

August 19, 2011 - 10:15 AM

BERLIN (AP) — The European Central Bank's chief economist is arguing against the introduction of so-called eurobonds, which he says would reduce incentives for troubled countries to tackle budget problems.

Juergen Stark was quoted as telling Friday's edition of Germany's Handelsblatt newspaper that introducing joint eurozone bonds would be "a transfer of creditworthiness from stable, solid countries to states that have less solid state finances."

Some, including the opposition in Stark's native Germany, view at least the limited introduction of eurobonds as the logical solution to the eurozone debt crisis. But Chancellor Angela Merkel is against them — and her junior coalition partners, the market-oriented Free Democrats, oppose them particularly vehemently.

Critics argue that the bonds' introduction would increase the borrowing costs of financially solid countries such as Germany, which went through painful economic reforms of its own in recent years, while allowing others to continue running up debt by reducing their financing costs.

"The incentive to tackle structural problems in budgets is reduced" by introducing joint bonds, Stark said — adding that their introduction without far deeper political integration would address "the symptoms and not the causes."

He argued that they could make sense following "a political decision for stronger European integration with European fiscal policy and a European finance minister with direct rights to intervene in national budget policies," according to the report. "But I don't know how that could happen."

"The discussion about eurobonds is going a similar way to the one about involving the private sector in financing Greece, or to the call for a debt restructuring," Stark was quoted as saying.

"It is an attempt to get out of the crisis easily. But it won't work without pain — eurobonds would only put a bandage on the problems."

Merkel has sought to dismiss talk of eurobonds, which she said earlier this week "won't help us."

A poll released Thursday underlined the issue's political riskiness in Germany. The survey by the Emnid agency for N24 television found that 76 percent of people opposed them and only 15 percent were in favor.

The poll of some 1,000 people was conducted on Tuesday. It gave no margin of error.

The Free Democrats, who are struggling in polls, have made an issue lately of opposing eurobonds and are claiming some of the credit for Germany holding out against them.

"Who knows what would have been decided without the Free Democrats?," party general secretary Christian Lindner asked in an interview with the daily Berliner Kurier.

The opposition is "betraying Germany's interests" by calling for eurobonds, he argued.

"Our interest rates would rise, those in Italy and Greece would sink," he added. "So we would have to pay financial institutes billions more in interest; we are better off using this money for education and tax relief here."