Germany rejects Eurobonds plan

24th November 2011

The issuance of Eurobonds would effectively mean combining the debt of single currenct countries in some way, certainly for new issuance. The move is strongly opposed by Germany which enjoys very cheap borrowing within the eurozone area unlike many of its neighbours. Eurobonds would inevitably mean that German borrowing costs would rise. Germany is also concerned that the move would allow Greece, Spain and Italy off the hook when it comes to their austerity measures.

Barroso said: "Implemented in the right way, the joint issuance of debt in the euro area could bring tremendous benefits. It could lead to greater financial integration and to the creation of a much larger and more liquid bond market – comparable to that which exists."

But Merkel was quick to oppose the plan.  She told Associated Press that "It is extremely troubling, I might say inappropriate, that the Commission is now focusing on proposals on euro bonds in different varieties," adding that it was unrealistic to suggest that debt "collectivization" would overcome the currency union's structural flaws."

The pressure cranked up yesterday on Germany due to disappointing auction of German bonds or bunds where not all the bonds offered were taken up.

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