Merkel will not back quick-fix options

No quick-fix options to tackle the euro crisis threatening to spin out of control will be supported by Germany, chancellor Angela Merkel has warned.

Ireland’s hopes for changes to cut the cost of its debt are also likely to be dashed, as Germany regards the proposals as an effort to change the bailout conditions.

Euro bonds and a quick banking union were firmly rejected by Ms Merkel when she appeared at the Bundestag to brief the German parliament on the next EU summit on June 27/28.

Before there could be any sharing of debts between the eurozone countries, a full fiscal union was needed, she said, with Brussels having much wider powers over member states’ budgets and tax policy.

“I know that it’s arduous, that it’s painful, that it is drawn-out. It’s a Herculean task, but it is unavoidable,” she insisted.

Ms Merkel cannot be seen to give way on any of the stringent conditions her parliament has laid down in return for agreeing to bailout funds.

A group of TDs met members of the Bundestag’s budget committee in Berlin some weeks ago to plead the case for changes to the €31 billion promissory notes for Anglo Irish Bank.

But their case appears to have met with little sympathy as the complex proposal was viewed mainly as a way to get around the conditions of the €67bn bailout.

Ms Merkel is under intense pressure, caught between the demands of her parliament and citizens fearing the billions of euro they have invested in bailouts will be lost, and the rest of the world demanding that something is done to stem the crisis that is affecting global growth, especially in the US.

There are growing signs that the €100 billion bank bailout for Spain is a failure, even before it has been finalised and Spain has drawn down any of the money.

The cost of borrowing hit more than 7% yesterday and Italy was drawn into the web of fear among markets. The euro zone’s third largest economy, it needs to raise about €30bn a month on the markets and is considered too big for the EU bailout mechanisms to save.

The Greek elections on Sunday are expected to create mayhem with the currency, as most political parties reject the bailout conditions and want them re-negotiated.

All governments are adamant they do not want Greece to exit the euro, but insist that there is little or no room for changes. Some have warned the money supply from the bailout will be cut immediately, if they reject the conditions.

One of the few areas where Germany might be willing to accede is on project bonds — which would mean linking money from the European Investment Bank for structural projects in individual countries — and on a financial transaction tax on share dealing, that Ireland has so far rejected.

There may also be some scope for a redemption fund where countries, with debt over 60%, would be covered by mutually guaranteed bonds.