Joint debt liability mooted

ECB governing council member Jens Weidmann says common euro bonds or joint debt liability could be established in the currency area in the context of a true fiscal union.

“If a framework was credibly established that reliably ensured the adherence to fiscal rules, then a common liability by the euro member states could be introduced,” Mr Weidmann said yesterday in Mannheim. “That could, for example, entail jointly-guaranteed or partially-guaranteed government bonds or a banking union.”

European policymakers are debating the future design of a more integrated single currency as a debt crisis that has seen four countries appeal for bailouts highlights its shortcomings.

Yields on Spain’s 10-year debt rose to a euro-era record yesterday after Moody’s cut the nation’s credit rating to one step above junk, citing its rising debt burden and weakening economy.

Mr Weidmann, who is president of Germany’s Bundesbank, said the euro area is facing a “decision over which direction a stable union should now take”. Two directions are possible, either toward a full fiscal union or back to national sovereignty and self-responsibility. In the latter scenario, common debt responsibility cannot happen, he said.

Bloomberg