Europe Crisis

German Chancellor Angela Merkel stands increasingly alone within the E.U. as she resists calls for the issue of joint euro-area bonds and junks what she calls the “principle of collectivization.”

Tomorrow’s European summit is being watched globally for likely solutions to the long-festering debt crisis. Spain, the latest European nation in trouble, made a request for help on June 25 that could amount to about $125 billion. Spanish 10-year bond yields are hovering just short of the 7% and according to Spanish Prime Minister Mariano Rajoy, these are rates the country cannot sustain for long.

“The most important thing today is being able to finance ourselves in the markets, that’s the main issue,” Rajoy said in Madrid. “And on that point Spain, Italy and other countries are going to push for reasonable decisions to be made,” using the “available instruments.”

Greece, Ireland and Portugal have previously received sovereign bailouts.
Whatever decision the summit takes must have Germany’s concurrence, being the economically strongest country in the European Union. Chancellor Angella Merkel is, however, refusing to play ball on Spain’s request, saying euro bonds were not the solution in the interest of a greater European integration, are economically “wrong and counterproductive,” and that instruments such as euro bonds, euro bills and debt redemption funds are unconstitutional in Germany.

Calling for improved “oversight,” Merkel said, “Oversight and liability have to go hand in hand. There can only be joint liability when adequate oversight is ensured.” Apparently, her solution to the crisis is more long-term and that crisis-ridden states must “keep to agreed rules” and raise their competitiveness through structural reforms, using the best in Europe as the standard “rather than mediocrity.”

Her views may not be shared by Rajoy, French President Francois Hollande and Italian Prime Minister Mario Monti, who are seized with trying to find more immediate solutions to the problems, and are in favor of joint euro bonds. Indeed, Niall Ferguson, professor of economic history at Harvard University lamented that key functionaries responsible for defusing the crisis are under a misconception as to the time frame required – “The timeframe for financial crises is days. The timeframe for structural reforms is years.”