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Europe's Leaders at Odds Over Joint Bond Plan

Europe’s leaders face fresh splits over how to tackle the euro zone’s escalating crisis after being urged to create as rapidly as possible a vast market for joint European government bonds, a move almost certain to be blocked by Germany.

Flags of member states of the European Union.
Armando Franca
Flags of member states of the European Union.

Jean-Claude Juncker, Luxembourg’s prime minister who also chairs meetings of euro zone finance ministers, and Giulio Tremonti, Italy’s finance minister, argue in Monday’s Financial Times that the launch of “E-bonds” would send a clear message to financial markets and European citizens about the “the irreversibility of the euro”.

They say the market for such bonds should become the most important in Europe, and as liquid as that for US Treasuries.

However, Germany’s Wolfgang Schäuble – on Monday named as the FT’s European finance minister of the year – said in a video interview that jointly guaranteed bonds would require “fundamental changes” in European treaties. He added that it was also key that governments had incentives to maintain discipline over finances – and faced sanctions when they did not. “Otherwise the euro would fail,” he warned. Germany also fears the issuance of joint bonds would raise its borrowing costs.

The contrasting views of Mr Schäuble, and Mr Juncker and Mr Tremonti, will fuel the debate about what radical steps are needed to restore investor confidence in Europe’s 12-year- old monetary union.

The European Central Bank was last week forced to step up substantially its purchases of euro zone governments’ bonds to prevent the crisis spinning out of control – but Jean-Claude Trichet, its president, made clear the initiative for its long-term resolution lay with politicians.

Mr Juncker and Mr Tremonti outline institutional arrangements for E-bonds that they say would impose market discipline on governments without them being exposed to “speculative attacks”, while at the same time fostering Europe’s financial and economic integration.

Among other ideas, which could be discussed when finance ministers meet in Brussels on Monday evening, is an increase in the European Union rescue fund.

Such a move was backed at the weekend by Didier Reynders, Belgian finance minister – and has also been implicitly endorsed by Mr Trichet.

Top EU officials met on Sunday to discuss the crisis. Attendees were to include José Manuel Barroso, European Commission president, Mr Juncker, Herman Van Rompuy, European Council president, Olli Rehn, economics commissioner, and Mr Trichet, according to a person familiar with the plans.

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