Bloomberg News

Merkel Risks EU Clash Over Political Union Push to End Crisis

November 25, 2011

(For more on Europe’s debt crisis, see EXT4.)

Nov. 14 (Bloomberg) -- German Chancellor Angela Merkel set herself on a collision course with non-euro countries and members of her own coalition as she called for political union in Europe to end the sovereign-debt crisis.

In her most explicit prescription yet to tackle the crisis, Merkel told an annual congress of her Christian Democratic Union in the eastern German city of Leipzig that it’s time to push for closer political ties and tighter budget rules. Evoking the 1989 pro-democracy protests that began in Leipzig and led to the fall of the Berlin Wall, she said the crisis too must be seen as a “turning point” in shaping European Union and euro policy.

“The task of our generation now is to complete the economic and currency union in Europe and, step by step, create a political union,” Merkel said today in an hour-long speech to more than 1,000 CDU delegates. “It’s time for a breakthrough to a new Europe.” At the same time, she repeated her rejection of joint euro bonds.

Merkel’s drive for closer union sets up a potential tussle with fellow European leaders at a summit on Dec. 9 that is due to discuss changes to the EU’s guiding treaty to bolster the euro. Prime Minister David Cameron has pledged a U.K. ballot on any changes to EU rules that mean a shift in power to Brussels. Cameron is due in Berlin for talks with Merkel on Nov. 18.

‘Wield a Veto’

“Changes to the EU treaties need the agreement of all 27 member states,” Cameron told Parliament in London on Oct. 24. “Every country can wield a veto until its needs are met.”

Stocks and the euro slid on concern that Europe will struggle to resolve the crisis. The Stoxx Europe 600 Index dropped 1 percent to 238.59 as of 3:28 p.m. in Berlin. The euro slipped 0.8 percent to $1.3633.

Merkel’s message “is that either we get more Europe now or the project will die,” Ralph Brinkhaus, a CDU member of parliament’s finance committee, said in an interview in Leipzig. “This means that Germany must give up some sovereign rights and some party colleagues and voters may find this hard to swallow. But there’s no alternative.”

Merkel’s address marks an escalation in her rhetoric as the debt crisis that began in Greece in October 2009 sent Italian and Spanish borrowing costs to euro-era records last week and roiled French markets. After leadership changes in Italy and Greece, the chancellor is turning her attention to shaping the euro and the EU’s future.

Van Rompuy Timeframe

European leaders have asked EU President Herman van Rompuy to present them with a report at their December summit on a “timeframe for the further strengthening of the euro zone” that should include “the question of possible treaty changes,” the German Finance Ministry said Nov. 9.

In her speech, Merkel renewed her warning that “if the euro fails, Europe fails” and said her mission was to save the “historic” EU project.

With her call for closer political union, Merkel’s goal is to reassure investors that the euro has a future, Michael Meister, the CDU’s spokesman on financial affairs in parliament, said in an interview in Leipzig. That may require the EU to call a convention to rewrite its treaties, he said.

“The long-term investor who buys on a 30-year horizon wants to know what things look like here 30 years from now,” Meister said. “If you tell him there will be a political union and make it clear that we’re moving forward step by step, he’ll say, ‘This has a future that I can invest in.’”

Italian bonds fell today for the first time in three days after it paid the highest yield since June 1997 at a sale of 3 billion euros ($4.1 billion) of five-year notes. The 10-year Italian yield rose 27 basis points, or 0.27 percentage point, to 6.69 percent, approaching the euro-era record 7.48 percent set Nov. 9. The yield on Germany’s benchmark 10-year bond fell eight basis points to 1.81 percent.

--With assistance from Leon Mangasarian, Patrick Donahue and Rainer Buergin in Berlin and Eddie Buckle in London. Editors: Alan Crawford, Jennifer M. Freedman.

To contact the reporters on this story: Tony Czuczka in Leipzig via aczuczka@bloomberg.net; Brian Parkin in Leipzig via bparkin@bloomberg.net.

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


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