Merkel warned over ‘worldwide recession’

GERMAN Chancellor Angela Merkel must consider joint European bonds as part of a battery of measures aimed at stamping out the debt crisis or risk a “worldwide depression”, said Germany’s BGA exporters’ association.

Policy makers should support so-called eurobonds with a “German signature” to counter a crisis that threatens the credit-worthiness of Europe’s biggest economies and the banking system, said BGA president Anton Boerner.

“If the European debt crisis isn’t brought under control, I see the danger of a recession that in the worst case could lead to a worldwide depression,” Mr Boerner said.

The BGA lobby, which says that German exports account for every third job in Europe’s biggest economy, adds its voice to a debate over euro bonds that Merkel has made a campaign issue at elections in her home state of Mecklenburg-Western Pomerania on September 4. She is due to brief lawmakers from her Christian Democratic bloc in Berlin later on the government’s stance during the debt crisis.

While Merkel stepped up her rejection of joint borrowing as an immediate means to solve the debt crisis, she said it might happen at some point in the “distant future.” Investors and opposition parties urged the introduction of eurobonds.

“The resistance to euro bonds is weakening” in Merkel’s bloc, Juergen Trittin, a co-leader of the opposition Green Party, said, citing a “pattern of behaviour” since the crisis began.

“First, they fight against it tooth and nail, then a short time later these urgent measures are sold as irrefutable,” he said. “In the end there’s no way to avoid issuing joint bonds.”

Mr Boerner said there is a danger of the crisis deteriorating to such an extent that eurobonds are foisted upon Germany anyway, without giving it the ability to influence the process.

The debt crisis, which drove up borrowing costs in Italy and Spain, might spread to France’s AAA credit rating and eventually even to Germany, said Mr Boerner. The crisis might spiral into “banking crisis II” and have an immediate impact on the real economy.

“If we don’t opt for euro bonds now, we’ll be faced with them when the crisis escalates from a crawl to a gallop,” said Mr Boerner. “We’d then get them on terms dictated by the market and not on our terms.”