German firms back eurobond issuance

LEADING German business groups called for joint eurozone bond issuance, despite their government’s opposition, and the European Central Bank showed its intent to defend Italy and Spain.

The ECB spent a record €22 billion on government debt last week to try to halt the spread of the eurozone debt crisis.

Spanish and Italian bond yields, which had soared to dangerous levels, fell back as a result of the central bank’s support, which marked its first bond purchases for 19 weeks.

Most experts say the latest }measures will only buy some time, whereas common bond issuance could solve the currency area’s intractable debt crisis by allowing all its members to borrow at affordable rates.

But the idea of so-called “eurobonds” has been fiercely opposed by Berlin, which is fearful such a step would push up German borrowing costs and reduce incentives for weaker eurozone members like Greece to reform their economies.

A German government spokes- man was emphatic — German Chancellor Angela Merkel and French President Nicolas Sarkozy will not discuss common euro-zone issuance at a meeting in Paris today because Berlin does not think it is a good idea.

“The German government has said on numerous occasions that it does not believe eurobonds make sense and that’s why they will not play any role at tomorrow’s meeting,” spokesman Steffen Seibert said.

However, a deepening of the debt crisis over the past weeks, with big member states like Italy, Spain and even France coming under pressure, has convinced some Germans to reconsider, even if top government officials continue to rule it out.

The president of Germany’s BGA export association became the first senior industry head to back the idea, saying all other avenues for fighting the crisis had been exhausted.

“The alternative is the markets attack Italy, then France, we lose our AAA rating and then it’s our turn. This is a downward spiral that would lead to a worldwide depression,” Anton Boerner said in an interview.

“We’ll end up paying three times over. This way we pay just once,” he said.

His view was backed by the head of Germany’s trade association for SMEs, Mario Ohoven, who said eurobonds could be introduced with guarantees to cap German liability. Other German trade groups remain opposed.

Head of the Social Democrats, Sigmar Gabriel, told German TV that eurozone countries should be able to raise 50%-60% of their funding through such joint issues if they agreed to certain conditions: “States that use eurobonds would have to agree to give up a degree of sovereignty over their own budgets.”

With common debt issuance off the agenda, Merkel and Sarkozy are expected to discuss improving economic governance.