Chancellor Angela Merkel of Germany was in a tight spot as fellow eurozone leaders turned up the heat on the issue of joint debt for the bloc—something she supports at home in Germany but has resisted in Europe.
Billionaire investor George Soros upped the ante, calling upon European leaders to start a fund for the purchase of Spanish and Italian bonds lest a planned summit meeting later this week fail to provide a solution to the crisis. And Spain formally asked for aid, a move that was expected after an earlier indication that the country would take such an action.
Bloomberg reported Monday that at a four-way summit meeting in Rome on Friday among the leaders of Germany, France, Italy and Spain, Merkel (left) found herself on one side of the table with the other three leaders united against her on the matter of increasing flexibility in how the eurozone’s rescue funds are used.
President Francois Hollande of France, Prime Minister Mario Monti of Italy and Prime Minister Mariano Rajoy of Spain all pressed Merkel to give way on such tactics as allowing banks to be directly recapitalized without funding having to flow through governments. Taxpayers in Germany could not support such a plan, she said, because they would have no oversight into how the funds were used.
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“You would have a huge problem here,” she said in the report, adding that as chancellor she only had powers over how German banks would use such funding—with no influence on the banks of other countries in the eurozone.
Last week she also nixed a proposal by Monti for either the European Financial Stability Facility (EFSF) or the European Stability Mechanism (ESM) to buy the bonds of Spain and Italy and thus backstop the crisis.
She has also been firmly opposed to any immediate move for the eurozone to issue joint bonds, despite Hollande’s support for such a plan; he had called joint bonds “a useful instrument for Europe.” However, at home her party backed down on opposition to a similar plan for the German government to underwrite debt from its own states.
Tighter EU rules on budgets brought Germany’s 16 states to pressure the central government for a means of shared debt sales. The government agreed Monday to a plan that will result in Germany’s first shared debt sale in 2013. However, Finance Minister Wolfgang Schaeuble said in the report that just because an agreement was reached within Germany, that doesn’t mean the country is ready to take on liability for the whole eurozone.