Germany's free borrowing is 'destroying Europe'

The record rate reflects increased market fears that the eurozone crisis will spin out of control if Greece leaves the euro-area, with German bunds considered a safe haven.

The German politician put the blame on Chancellor Angela Merkel for allowing policies that fuel this imbalance and warned that this will eventually backfire against Germany as well.

"We cannot have negative interest rates on one side and on the other having countries sinking under the burden of too high rates," he said.

Schulz, who as a socialist is a political rival to the centre-right chancellor, said he hoped the discussions on Wednesday would move towards more employment-friendly policies, given that youth unemployment in some countries is above 50 percent, a rate he considers will "damage democracy."

Asked if Merkel was increasingly isolated given that more and more leaders are rallying around France's Socialist President Francois Hollande, the German Social-Democrat said: "Merkel must admit that in other countries there are majorities she is not sharing. She has to make compromises. But I don't think she's isolated."

Speaking an hour later, Merkel restated her opposition to eurobonds - a proposal promoted by Hollande which would have the eurozone countries issue joint bonds, lowering borrowing costs for countries like Spain and Italy while likely increasing Germany's costs.

"Eurobonds are not a contribution to stimulating growth in the eurozone," Merkel said on her way into the summit. She added that the EU treaties explicitly banned mutualising debt.

"We would only repeat the serious mistakes of the past when countries were allowed to borrow at low rates without making any reforms," she stressed.

Hollande, for his part, said he was not looking for confrontation with Merkel, but he would not back down from the eurobonds proposal.

"I think it is important that we can say what we think," he said, noting that no decisions would be taken at this meeting, but at a summit late June.