With the once-dominant duo of Sarkozy and Merkel gone, many have been keen to see how the relationship between German Chancellor Angelina Merkel and new French President Francois Hollande will turn out. As it happens, Ms Merkel and Mr Hollande hold very differing views on how to bring the Eurozone out of its debt crisis.
Mr Hollande has been rallying strongly against Germany’s austerity, advocating instead for boosting growth in the economy through joint borrowing and cash injections into struggling banks. Prior to the EU Summit in Berlin yesterday, Mr Hollande made it clear that he intends to bring up the issue of eurobonds with other EU leaders at the meeting. The eurobonds will help debt-ridden countries like Belgium, Italy and Luxembourg pay off their debts by relying on European aid.
According to Mr Hollande, who chose to attend talks with Spanish Prime Minister Mariano Rajoy instead of the usual Franco-German pre-summit meeting, he does not want France’s “relationship with Germany to be like an executive board that imposes itself on others”. However, he acknowledged that France’s relationship with Germany is “very important”.
Ms Merkel, on the other hand, reiterated her strong opposition to eurobonds upon her arrival at the EU summit. Ms Merkel said she believes that “they are not a contribution to stimulating growth in the Eurozone” and that the EU treaties “do not allow member states to take over the debt of other members”. There are fears that doing so could result in sharply higher borrowing rates for the German economy and reduce the incentive for countries with high debts to implement the necessary financial reforms in order to emerge from the current crisis.
With both leaders supporting contrasting views on how to resolve the deepening crisis in the Eurozone, leaders from various countries seem to be taking sides as well. Finnish Prime Minister Jyrki Katainen said that eurobonds could institutionalize excessive borrowing, and believes that countries must be responsible for their own debt. Swedish Prime Minister Fredik Reinfeldt held the same opinion, considering the idea “badly thought through”. He called for an increase in measures for trade and structural reforms instead. However, Italian Prime Minister Mario Monti and Chancellor of Austria Werner Faymann backed Mr Hollande’s plan, agreeing that some form of euro bond may be an option worth going back to.
Topics like deepening the internal European market, structural reforms and better use of the European Investment Bank are expected to feature prominently at the summit. Eurozone leaders were also asked to prepare a Greek exit contingency plan prior to the meeting, as the possibility that the Greek leaves the single-currency zone rises.
Report: Euro-Zone bond push meets heavy resistance at EU summit [Wall Street Journal, 23 May 2012]
Report: Eurobonds do not stimulate growth: Merkel [Channel NewsAsia, 24 May 2012]
Report: France’s Hollande makes bold debut on EU summit stage [Reuters, 23 May 2012]