Bloomberg News

Schaeuble Says Common Bonds Would Create ‘Inflation Community’

August 20, 2011

Aug. 20 (Bloomberg) -- The euro region would become an “inflation community” if member countries decide to sell bonds jointly without unifying their fiscal policies, German Finance Minister Wolfgang Schaeuble said today.

“Unless there is a single financial policy in the euro area, there won’t be a single rate of interest” on debt sold, Schaeuble said at the finance ministry in Berlin.

Selling common bonds with a single interest rate would spark inflation and destabilize the currency as long as the euro area doesn’t have a single budget policy, Schaeuble said in his first public engagement since returning from a summer break.

The European Commission said yesterday it may present draft legislation on joint euro-area bonds after completing a feasibility report. The commission, the EU’s regulatory arm in Brussels, earlier this year opposed such a step because of German-led objections.

Hyperinflation in Germany between 1921 and 1923 has influenced policies at the Bundesbank since it was created in 1949 to safeguard the stability of the deutsche mark. Inflation in Germany, Europe’s largest economy, rose to 2.6 percent in July, outstripping the ECB’s reference rate of 2 percent.

Chancellor Angela Merkel yesterday told members of her Christian Democratic Union party that she opposed a “collectivization” of debt that would leave the bloc’s members worse off. Merkel’s party faces two state elections in September, the same month in which her coalition aims to win a parliament vote for a second round of financial aid to Greece.

A majority of German voters oppose joint euro-area borrowing to quell the debt crisis, a poll published Aug. 18 showed. Seventy-six percent of respondents said they were against euro bonds and 15 percent in favor, according to the Emnid poll for broadcaster N24.

Germany would face extra costs of 47 billion euros ($67.6 billion) annually if it aligns interest rates with nations that pay more to borrow, the country’s Ifo institute said on Aug. 17.

--With assistance from Patrick Donahue in Berlin. Editors: Ross Larsen, Michael Harrison.

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net;

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net.


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