Germans and Dutch dismiss proposals

AFFORDABLE borrowing from the markets in exchange for a strictly enforced set of rules on national budgets will give eurozone countries the kinds of benefits the US Treasury has today, European Commission president Jose Barroso promised.

However, the carefully crafted set of proposals designed to address Germany’s demand for more fiscal rectitude were immediately dismissed by Chancellor Angela Merkel and fellow AAA-rated colleague, the Dutch finance minister.

While Mr Barroso warned that it was a matter of sharing sovereignty, or handing it over to the markets, the investors gave Germany a fright, buying just over half the €6 billion German 10-year bonds the government hoped to sell. This was the first time this happened since the adoption of the euro, but analysts pointed out the German bund is also at an historically low rate of just 1.98% reflecting its popularity, as investors in recent days flocked to the bund in preference to other AAA-rated bonds.

Mr Barroso unveiled the toughest set of measures to bind eurozone spending by both indebted and rule-abiding countries to a set of rules that would be strictly overseen from Brussels.

He rejected suggestions that Berlin was completely against the quid pro quo, the euro bonds or stability bonds as the commission is calling them, saying, “The comments from Germany are mostly about the timing of the options. I feel confident that when the opposition is about timing, it is not opposition”.

But Ms Merkel, who prefers inter-governmentalism rather than the community method, described the proposals as “troubling” given the crisis, and “extraordinarily inappropriate”.

Mr Barroso asked, “If the Commission does not do it, who could? If we want to keep the common currency we must, and member states must accept the institution with powers delegated from the member states”.

Economics Commissioner Olli Rehn said the three options they have assessed for creating euro bonds were “not the silver bullet that will get us out of the crisis”. The union needed to work on all relevant fronts, he said.

These included putting into their constitutions the need for balanced budgets in each member state and an independent fiscal body to oversee each country’s management of their finances.

Countries will present a draft of their budget each October to the Commission who may request changes. The budgets will be published and every national parliament will have full information on all other countries’ budgets at the same time. National parliaments will have the final say.

“Democracy is not only possible within the limits of the nation state in the 21st century, but we need to compliment this with the democracy of the EU, otherwise we will hand over our sovereignty to financial markets and speculators,” Mr Barroso said.

Countries that breach the debt guidelines of 60% of GDP and 3% budget deficit will have to report on their finances every three months when they are going off track, or twice a year when they are on track.

Countries, like Ireland, in bailout programmes and those believed to be in severe difficulties are subject to much closer control, having continually to report to the Commission and be told to take further measures.

But the surveillance will continue for bailed-out countries past the time their finances come into line with EU requirements, and until they have repaid 75% of the money they received, and the council may extend the length of surveillance beyond this.

Any country not complying with its adjustment programme would have their EU funds such as for agriculture, fisheries and regional development suspended. The Council, representing the member states, may on a recommendation from the Commission, decide on any change to a country’s bailout programme.

These will go to the European summit on December 9 to be discussed by the states’ leaders.

Eurobond options

INSTEAD of having to rely on investors to lend money to eurozone countries, they set up their own fund — eurobonds.

The bonds would be issued jointly by all 17 eurozone governments including the six Triple As.

Investors would receive one rate of interest — which analysts reckon would be slightly higher than what Germany is paying at the moment.

Because of the crisis, an increasing number of investors are putting their money into German debt, and their popularity means that Germany can offer even less interest for them. The Commission is proposing three options:

* A full eurobond that would replace the money all eurozone countries now borrow on the open market that would be backed by a full all-member guarantee;

* 2. Partial replacement of national bonds with blue bonds fully guaranteed.

These two require Treaty change and will need greater financial integration.

* 3. Partial replacement of national bonds but with each member responsible just for it’s share of the guarantee.

No treaty change and will maintain market pressure on indebted countries.