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Gregorio Borgia/AP

Eurobonds will come sooner or later, reckons Mario Monti

A Europe divided: in the very same newspaper, Germany’s foreign minister Guido Westerwelle says they’re a no-go area.

ITALIAN PRIME MINISTER Mario Monti believes eurobonds, a contested tool proposed as a way of alleviating the eurozone crisis, will eventually become reality, he told a Greek newspaper today.

“I believe we will have eurobonds is some form or other, because our (European) union is getting closer,” Monti told To Vima, warning however they were not a “licence to spend” or an alternative to cutting debt.

In the same newspaper, however, German foreign minister Guido Westerwelle reiterated Berlin’s opposition, saying eurobonds would “increase debt and reduce competitiveness.”

Underwritten by all eurozone countries, eurobonds would allow troubled members such as Greece and Ireland to raise funds at much less painful interest rates than if they borrowed on their own. Backers include new French president Francois Hollande, and European Commission president Jose Manuel Barroso.

But German Chancellor Angela Merkel is opposed, seeing a risk that eurobonds would reduce the incentive to balance budgets and cut debt, while also pushing Germany’s own borrowing costs higher.

Germany’s money for nothing

Interest rates on two-year German bonds on Friday went negative for the first time as investors worried about financial turmoil sought a safe haven for their cash – effectively meaning they have to pay Berlin to lend it money.

Monti said meanwhile that he was “certain” Greece would not leave the eurozone even after June 17 elections that investors fear will result in just such a scenario, potentially spelling turmoil for Monti’s own country, Spain and others.

He stressed however that Athens had to “continue and intensify its work to create a strong economy,” a reference to the austerity cuts Greece has promised in return for bailouts from the EU and IMF.

Westerwelle for his part said that he wants Greece to remain in the currency union and expressed confidence that voters would “take the right decisions,” while adding that the terms of the bailouts “must be respected.”

- © AFP, 2012

Explainer: What are Eurobonds and why do they matter?

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