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France and Germany dismiss prospect of common 'E-bonds'

Merkel and Sarkozy commit to defending the Euro – but say they’re not considering plans to issue common Eurozone bonds.

Image: Eric Feferberg/AP

FRANCE AND GERMANY have poured cold water on the prospect of having the Eurozone countries issue common bonds, saying the plans are not under discussion.

French president Nicolas Sarkozy and Germany’s chancellor Angela Merkel were adamant yesterday that while both countries were committed to ensuring the continued survival and stability of the common currency, neither was yet advocating the consolidation of Eurozone borrowing.

The Wall Street Journal reports that the declaration came at a joint news conference which took place during a a joint meeting of the French and German cabinets.

“Our determination is total,” Sarkozy said, while Merkel said her cabinet was still keen “to do everything to guarantee financial stability in the euro zone.”

Asked if either country would instead support the proposed expansion of the European Financial Stability Fund(EFSF) – the Eurozone’s bailout fund, from which Ireland is being given €22.5bn – Merkel said such a proposal was “not a question”, pointing out that Ireland’s share of the pot was less than 10% of its total value.

Sarkozy was less unequivocal, however, saying his country would “do what it takes to defend the Euro.”

Austria’s central bank chief Ewald Nowotny also said the concept of a common E-bond should not be considered a viable short-term prospect, with Reuters reporting that the finalisation of the EFSF as a permanent mechanism seemed a more appealing prospect.

So-called E-bonds would have consolidated the borrowing requirements for all Eurozone nations, and had become a reasonable prospect in recent months as weaker European countries saw their own price of borrowing veer into unsustainable territory.

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One of their key proponents, Luxembourg prime minister Jean-Claude Juncker, said he still believed, however, that E-bonds could one day be a realistic prospect.

“I am convinced that euro bonds could be, and one day will be, instrument to counteract irrational movements on the capital markets that are directed against individual countries in the euro zone and the euro zone as a whole,” Juncker told German TV station ZDF.

French and German opposition was considered a likely prospect, as the cost of borrowing for each of those two major economies would be far lesser than that of an aggregated European bond.

About the author:

Gavan Reilly

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