El-Erian, World Bank, Ministers Warn Euro, U.S. Leaders

These coincidental warnings may be meeting their first test ahead of German Chancellor Angela Merkel’s and French President Nicolas Sarzkozy’s meeting in Paris on Tuesday, with particularly close attention being paid to the subject of Eurobonds. A Eurobond issue would allow the currency union to jointly issue debt, thus allowing the credit of financially stronger euro members to shore up the poor credit of weaker members.

But a German finance ministry spokesman says creation of Eurobonds is off the table in tomorrow’s talks. Reuters reports the French government has also ruled out Eurobond talks, even as two German trade associations came out in favor of such a debt instrument. Eurobonds would raise borrowing costs for Germany and France, but lower them for Europe’s most indebted nations.

Neither Germany nor France has said a Eurobond is out of the question at some future point, but neither is prepared to discuss the matter in Tuesday’s talks.

It is this lesser sense of urgency that is at the heart of some financial authorities’ concern. Said Zoellick: “The European decision mechanism has continued to muddle along and put together packages that while are significant in their political difficulty have not matched the test of the economic need, and that has, I think, contributed to the weakening of confidence.”