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EU executive sees eurobonds backed by budget discipline as best way out of financial crisis
BRUSSELS (AP) ' The European Commission backed the introduction of jointly issued eurobonds, coupled with stricter budgetary discipline, as the best way out of a debt crisis that's threatening the 17-country eurozone.
EU Commission President Jose Manuel Barroso said Wednesday that the countries using the euro currency needed to work more closely together to dovetail their budgetary policies and avoid having one nation endanger all others by not living by its financial commitments. The crisis, which started in Greece nearly two years ago, has now spread to much-bigger economies such as Italy and Spain and there was a hint Wednesday that not even Germany is immune.
Barroso, who heads the executive arm of the European Union, said there was a need to "embrace deeper integration for the euro area" and that "implemented in the right way, the joint issuance of debt in the euro area could bring tremendous benefits."
Barroso said it could lead to greater financial integration and to the creation of a much larger bond market, comparable to that of the United States treasuries.
Germany has opposed the use of eurobonds and has long called on profligate member states to clean up their own houses with as little outside intervention as possible. A big worry for Germany is that its low borrowing costs would get diluted if eurobonds came into issue and it would then be forced to pay higher rates to tap bond markets.
Anticipating the proposal, Chancellor Angela Merkel poured cold water on the idea in the German Parliament earlier in the day.
"It is extremely troubling, I might say inappropriate, that the Commission is now focusing on proposals on eurobonds in different varieties," she told legislators.
Merkel argued that it was a pretense to suggest that a "collectivization of the debt would allow us to overcome the currency union's structural flaws."
While Merkel was voicing her opposition to the idea of eurobonds, Germany suffered what many in the markets are describing as a failed bond auction.
Despite being touted as the European bedrock of financial stability and rigor, Germany failed to raise as much money as it hoped in its latest bond auction, in a sign that even it may not be immune from the debt crisis raging across the continent.
Germany's Financial Agency said its latest euro6 billion ($8.1 billion) auction of 10-year bonds met with only 60 percent demand. It blamed "the extraordinarily nervous market environment" for the weak demand.
Since Greece pushed the eurozone into its ever-worsening financial mess last year, many member states have seen their cost of government borrowing rise to record levels. Germany's borrowing rates though have dropped sharply as investors buy up its bonds as a safe haven.
Germany has long been reluctant to bail out member states like Greece, Ireland and Portugal, insisting it was up to their governments to live by sound economic principles and win investor confidence.
Barroso said that eurobonds, or so-called stability bonds, "will not solve our immediate problems."
Still he said "stability bonds are examples of reinforced governance, of a strong will to live together in the euro area and a good example of discipline."
Juergen Baetz in Berlin contributed to this report.