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2nd Mar 2024

Juncker calls Germany 'un-European' ahead of EU summit

  • Luxembourg Prime Minister Jean-Claude Juncker (Photo: Luxembourg EU Presidency)

A fresh round of squabbling has broken out in the European Union, with Luxembourg's prime minister, Jean-Claude Juncker, launching a scathing attack on Berlin over its refusal to create a shared bond for eurozone countries.

Berlin quickly hit back on Wednesday (8 December) saying Mr Juncker's finger-pointing was exactly the type of action which unsettled markets, while in Geneva IMF chief Dominique Strauss-Kahn warned that Europe needed to "pull itself together" if it is to avoid years of slow growth.

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Mr Juncker provided fresh political impetus to the long-running eurobond debate this week, first arguing in an opinion piece in Monday's Financial Times that the concept would help shore up eurozone stability by lowering the borrowing costs of peripheral eurozone states such as Greece and Ireland. German officials quickly dismissed the idea however.

"They are rejecting an idea before studying it ... This way of creating taboo areas in Europe and not dealing with others' ideas is a very un-European way of dealing with European matters," Mr Juncker, who also chairs the monthly meetings of eurozone finance ministers, later told the German weekly Die Zeit.

German Chancellor Angela Merkel in reaction called for calm and urged EU leaders to concentrate on securing a good outcome at next week's European Summit in Brussels. "The discussion does not help us," she said after meeting with Swedish Prime Minister Fredrik Reinfeldt.

"It is exactly this talking against other people and about other people which should stop, because the markets definitely see this finger-pointing as a sign of disaccord," her spokesman Steffen Seibert said at a regular government briefing.

Mr Seibert insisted that Berlin had carefully studied the eurobond idea before coming to a conclusion. "The suggestion that we have rejected it without considering the details is not correct," he said.

German opposition includes the belief that the radical step towards further eurozone integration would require a significant EU treaty change as opposed to the modest tweak EU leaders are expected to approve next week in order to set up a permanent crisis fund.

Berlin is also concerned that the added security of a common eurozone bond would remove the incentives for governments to put their budgets in order, and would likely lead to an overall rise in German borrowing costs with the eradication of the German bund, currently seen by investors as the least risky sovereign bond in the 16-member currency club.

Media reports suggest Germany may be softening its tone regarding an alteration of the eurozone's temporary rescue mechanism however, the €440 billion European financial stability facility (EFSF).

Increasing the facility's size has been cited over the past week as the second important action EU policymakers could take to calm market jitters, although one option being studied in Brussels would simply enable the Luxembourg-based facility to lend its full complement of borrowings to struggling governments, reports the Financial Times.

At present, the fund is compelled to hold back roughly one third of €440 billion it can borrow, with the cash buffer needed to guarantee its triple-A status.

The issue is likely to be discussed by heads of state meeting in Brussels next week. Also high on their list of agenda items are changes to the EU treaty so that the temporary ESFS can be turned into a permanent crisis fund when it expires mid 2013.

EU governments have reached a broad consensus on a narrow change to the Lisbon Treaty ahead of the summit, reports the Irish Times. Dublin is among capitals keen to avoid any new transfer in power to the EU level, something that would almost certainly invoke a referendum in Ireland.

Following a legal review, the leaders plan to execute the change by deploying a special amendment procedure reserved for measures which do not transfer powers. This would also remove the need for a constitutional convention.

Germany is pressing for language which would enable the private sector to share in the costs of future bail-outs.

Separately on Wednesday, former UK prime minister Gordon Brown warned that the euro will face a "high noon" moment of reckoning early in the New Year.

"I sense that in the first few months of 2011 we [will] have a major crisis in the euro area," he told the BBC, pointing to government deficits, the eurozone's structural rigidities and the enormous debts of EU banks as among the chief problems.

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