Insolvent Euro nations “won’t drag Germany down”

Angela Merkel gets tough.

THE GERMAN CHANCELLOR Angela Merkel has said that her country will not “support prolonging crisis mechanisms willy-nilly”.

Speaking in the Latvian capital of Riga, she said Germany could not underpin the euro indefinitely because that would damage the single currency in the long term.

Her country has shouldered the biggest share of risks in a bailout of Greece and the €750 billion euro package assembled to protect the euro, which will expire in 2013. In return, Germany is pushing for tougher budget rules to avoid a repeat of the debt crisis in the future.

The current crisis mechanisms have time limits. Germany will not support prolonging them willy-nilly because someone says, ‘now that we have such a great rescue mechanism it can just carry on like that for ever. I’m making this clear because I’m firmly convinced that if Europe wants to carry on the success story of its domestic market and its joint currency, we need to be straight with ourselves and pursue solid budgetary and financial policies.

One proposal being pushed for by Germany is the creation of a provision for an “insolvency law” for states which can no longer refinance themselves. Merkel said this was needed to ensure insolvent European nations did not drag down the others.

We know that we don’t have a majority for that at the moment. But we will work with great purpose over the next few years to ensure that we get a majority.

EU finance ministers agreed on Tuesday to submit future budget plans for review by the European Commission and other EU governments to help strengthen EU budget rules. Merkel added:

We need a structure so that countries which don’t meet the criteria in the long term do not negatively affect other EU countries.