Bloomberg News

Barroso Says Euro Bonds Should Be Preserved as an Option

September 21, 2011

(Adds comments from Greece’s Venizelos in 11th paragraph. See {EXT4 <GO>} for more on the European debt crisis.)

Sept. 21 (Bloomberg) -- Policy makers battling a European debt crisis shouldn’t rule out issuing joint euro-area bonds and must develop integration tools to make that possible, even if German opposition means it can’t be done immediately, European Commission President Jose Barroso said.

“The commission believes we should look also at that option,” Barroso said in an interview at Bloomberg’s headquarters in New York. “We are not saying it is immediately. This is a matter that must be discussed, but we should not exclude that option either.”

The idea of bonds sold jointly by the euro area’s 17 nations remains alive because unprecedented bailouts by governments and the European Central Bank have failed to stamp out debt concerns that began in Greece almost two years ago and rattled markets. Barroso said the commission, the European Union’s executive branch, would present euro-bond options “very soon,” reiterating a previously stated time frame.

Germany and France have opposed so far joint euro bonds, arguing it could threaten their AAA credit rating.

“Euro bonds is part of the issue, it’s not the panacea,” Barroso said in yesterday’s interview.

Barroso said euro-area members must work to increase economic and fiscal integration to ensure long-term stability. “We have a monetary union, but we have not yet the instruments of a full fiscal economic union. It takes time, yes,” Barroso said.

Investor Doubts

As the Greek government fights investor doubts and domestic opposition, European leaders are squabbling over the prospect that they will be forced to channel more money to keep Greece in the currency union. U.S. Treasury Secretary Timothy F. Geithner said in an interview this week that Europe will eventually adopt some of the same measures the U.S. took after the 2008 financial crisis.

The European debt crisis that began in Greece in late 2009 has triggered 365 billion euros ($499 billion) in emergency bailout loan pledges and exposed cracks in the euro’s architecture.

Greece is seeking this month to win a sixth payment of loans under last year’s 110 billion-euro aid package from the euro area and International Monetary Fund to avoid a default. Prime Minister George Papandreou’s government also wants to benefit from a planned second aid package of 159 billion euros approved by euro-area leaders on July 21.

‘Good Progress’

Greece held a conference call yesterday with the European Union, the European Central Bank and the International Monetary Fund. The talks made “good progress” while the full mission of the EU, ECB and IMF is expected back in Athens early next week, the EU said.

The austerity measures demanded in return for the emergency loans are worsening a three-year recession in Greece, making it harder for the government to meet the deficit goals laid out in the international aid package. Greek Finance Minister Evangelos Venizelos said extra budgets cuts were needed to meet targets because of the deeper-than-projected slump and failures by the government to enact measures agreed upon last year.

“The risk is that the system, the financial sector and the real economy stop functioning,” Venizelos told Parliament in Athens today before Papandreou convenes his Cabinet to press for accelerating austerity measures.

Merkel’s Coalition

The specter of a Greek insolvency was raised by members of German Chancellor Angela Merkel’s coalition, when Economy Minister Philipp Roesler said there can be no “taboos” in considering action “to stabilize the euro in the short term.” The German government is considering a “Plan B” to help shield banks and insurers from losses if Greece defaults, three coalition officials said on Sept. 9 while rejecting the euro- bond plan.

“We are opposed as far as the instrument of euro bonds is concerned because we believe you can’t fight debt in Europe by making it easier to take up debt,” German Foreign Minister Guido Westerwelle told reporters in Berlin on Sept. 14.

French Finance Minister Francois Baroin said two days earlier that bonds backed by the entire euro area may eventually be an option, though they aren’t an immediate solution to the region’s sovereign-debt problems.

--With assistance from Maria Petrakis and Natalie Weeks in Athens. Editors: Kevin Costelloe, Brendan Murray

To contact the reporter on this story: Helene Fouquet in New York at hfouquet1@bloomberg.net

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


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