Merkel rebuffs pleas for debt action on summit eve

Wed Jun 27, 2012 3:03pm EDT
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By Noah Barkin and Julien Toyer

BERLIN/MADRID (Reuters) - On the eve of an EU summit that could determine the future of the euro zone, German Chancellor Angela Merkel brushed aside increasingly shrill calls from Spain and Italy on Wednesday for emergency action to lower their soaring borrowing costs.

European Union leaders go into the two-day meeting on Thursday afternoon (1300 GMT) more openly divided than at any time since a still-widening debt crisis erupted in early 2010 after Greece had revealed its budget deficit and debt were far higher than reported.

Addressing parliament in Berlin, Merkel accused top EU officials of putting the cart before the horse by proposing common euro zone debt before EU controls are in place on national budgets and economic policies.

"I fear that at the summit we will talk too much about all these ideas for joint liability and too little about improved controls and structural measures," she said, renewing her mantra that even Europe's strongest economy must not be overburdened. Merkel left the door ajar to eventual joint debt issuance but offered no immediate moves to ease the crisis. By contrast, EU Economic and Monetary Affairs Commissioner Olli Rehn said European leaders would work at the summit on short-term steps to relieve market pressure on countries at risk.

"It is essential that (short-term policy measures) are decided by the European Council," Rehn told reporters.

The German leader insisted governments must commit to giving EU institutions the power to override their budgets and make them change policy before there could be any shared liability for Europe's debt.

"Joint liability can only happen when sufficient controls are in place," she said. The remarks appeared to be a less definitive rejection of common euro zone bonds than she made behind closed doors on Tuesday, when she told lawmakers she did not expect to see total shared debt liability in her lifetime.

Rome and Madrid have seen their borrowing costs spiral to a level which Spain at least could not afford for long as it tries to recapitalize banks ravaged by a property market collapse and cut a towering budget deficit.   Continued...

Demonstrators wearing masks depicting German Chancellor Angela Merkel (L-R), Spanish Prime Minister Mariano Rajoy, Italian Prime Minister Mario Monti and French President Francois Hollande, pose as they simulate playing a soccer match to protest against the euro zone debt crisis, in front of the Chigi palace in Rome, June 22, 2012. The message on the goal post reads: "Tax on the financial transactions". REUTERS/Remo Casilli