The James Bond of bonds?

It is very rare indeed for the German Finance Ministry to deny a press report so swiftly and without being asked. On Monday morning, however, journalists across Germany received an email from the ministry's press department denying reports that so-called elite or triple-A bonds were being discussed.

The ministry also said the concept had not been part of recent talks between Finance Minister Wolfgang Schäuble and his counterparts from Finland and the Netherlands.

Protective barrier?

The denial came after the German daily Die Welt had reported that plans were being discussed in Europe for common bonds from those countries in the eurozone that still enjoy a high credit rating. Quoting diplomatic sources, the paper said those nations included Germany, Austria, France, Finland, the Netherlands and Luxembourg.

The report went on to say that these "elite bonds" could help fund financial aid for ailing economies like Italy and Spain, but only under strict conditions for those countries. The bonds could serve as "a credible protective barrier that would reassure the markets."

No unlimited power

The report seemed to have hit a nerve in Berlin's political circles. It was as much a point of discussion at the regular party meetings at the start of the week as it was in the Chancellery. Government spokesman Steffen Seibert said Germany was showing solidarity with its European partners and investing heavily to achieve that goal. But he emphasized that Germany also had debts to service.

"Even we, as a country that's admittedly better off economically than many of its partners, do not have unlimited financial power," Seibert said. He explained that it was for this reason that the German government had reacted with skepticism to those who demand that Europe dig even deeper to contain the crisis.

"We in Europe cannot pretend to have all this financial firepower when we don't. That would be something the markets would figure out pretty quickly - with even more devastating results," he said.

No common guarantees

But everyone in Berlin knows that the subject will not go away anytime soon, especially since the Commission last week published three proposals for Eurobonds. The elite bonds would merely be a fourth version of the same idea.

But the general secretary of Angela Merkel's Christian Democrats (CDU), Herman Gröhe, on Monday called them an "unsuitable measure, even in an emergency situation."

The Free Democrats (FDP), junior partners in Merkel's coalition, remain adamant that a common bond policy is out of the question. "We will not agree to any kind of Eurobonds, no matter what the concept, I don't care if they're red or blue, if they're called elite bonds or James Bonds," FDP Secretary General Christian Lindner said, insisting that the element of communal responsibility would strip crisis-stricken countries of the motivation to push through real reforms. In effect, he said, these bonds would exacerbate the crisis, not alleviate it.

Opposition wants stronger ECB

Germany's Left Party disagrees with that view. Its chairman, Klaus Ernst, pointed out that the measures taken so far have failed. Europeans are having to put their money mostly into paying for defaults, he said. And he also points out that some in Brussels say the rescue fund EFSF should be topped up to at least 3 trillion euros to be effective.

At the same time, Ernst says, Germany is starting to feel the effect of the crisis as it has to pay more interest on its bonds too. "The European Central Bank must play a much more active role, like its counterparts in the UK and the US," Ernst said.

Martin Schulz, head of the Social Democrats' parliamentary group in Strasbourg, has a similar view. He flew to the party's Berlin headquarters to drum up support for the bonds.

"What the markets need now are signals for stability," he said. The only question now is, he said, whether the money will come from common bonds or from the ECB. He points out that common bonds that would initially be backed by each country individually, are possible under the current EU Treaty and could then morph into genuine, common European bonds at a later stage, he said.

Changes to the treaty, he added, are not just contentious in the EU, but they would also take far too long to push through. "We don't have that much time," he warned.

Government disagrees

But the government under Angela Merkel has other ideas. The only ways out of the current crisis, according to government spokesman Seibert, are to reduce debt, balance the budget, increase competitiveness and strengthen the EU.

Merkel is expected to present her concept next Friday, ahead of the EU summit on December 8-9. Until then, France and Germany will press ahead with their plan to achieve changes to the Treaty.

The German government is adamant that limited changes to the treaties can be achieved in a surprisingly short space of time.

Author: Sabine Kinkartz, Berlin / ng
Editor: Michael Lawton