STEVE INSKEEP, Host:
Treasury Secretary Tim Geithner is Europe meeting European leaders about their struggle to address a debt crisis, though Geithner says he's in no position to lecture anybody. Geithner says American politics are, quote, "terrible, maybe worse than Europe." Still, Europeans have a political problem. Different counties do not agree on how to share Europe's obligations. A proposal to issue bonds, supported by all of Europe, might ease the debt problems of some nations but doesn't sit well in Germany, the largest economy.
Here's NPR's Eric Westervelt.
ERIC WESTERVELT: In a speech Thursday at the famed Frankfurt Auto Show, Chancellor Angela Merkel said the way out of the crisis is for indebted countries to implement a thoughtful, careful plan for fiscal reform. She again dismissed the idea of collectivizing debts through euro bonds.
ANGELA MERKEL: (German spoken)
WESTERVELT: I am convinced that step by step measures will help to overcome the crisis, Merkel said. But that will only happen when these steps follow one another and as long as there is no search for one magic solution, like the buzz word euro bonds. I think that is absolutely wrong, she said.
Many German politicians and financial analysts agree. They think jointly issued bonds would simply drive up interest rates and punish fiscally cautious countries, such as Germany, which enjoys the lowest sovereign borrowing costs in the eurozone. It would also, they argue, remove any incentive for fiscally irresponsible states to make good on pledges to change and reform their public finances.
Hans Werner Sinn is a leading economist and president of the Center for Economic Studies at the University of Munich.
HANS WERNER SINN: (Through translator) We will destroy ourselves if we have euro bonds. Europe's states would go much, much deeper into debt, and that debt would lead to complete ruin. I'll readily admit that euro bonds would, for the short-term, help stabilize the financial markets. But in the long-term, they would completely destabilize Europe by eliminating the interest rate differences which we need to prevent excessive capital flow within Europe.
WESTERVELT: Proponents of euro bonds, however, say they could foster stability and much needed fiscal integration. The euro bond idea refuses to fade away, perhaps because market traders remain unconvinced that Greece and other debt-troubled euro zone countries will make the necessary structural reforms to get in fiscal shape. The European Commission, this week, said it would soon present its own ideas for euro bonds.
There's still at lot not known about how any euro bonds might be financed, rated and organized. But under any formula, it would almost certainly mean setting up a Europe-wide finance ministry, or the like. But creating a kind of fiscal United States of Europe is something few eurozone countries are ready to embrace, given the inevitable loss of autonomy.
The European Union's Economic Affairs Commissioner, Olli Rehn, acknowledged that challenge this week in an address to the European Parliament.
OLLI REHN: This would have implications for fiscal sovereignty of member states, which calls for a substantive debate in the euro area member states, to see if they would be ready to accept this.
WESTERVELT: That substantive debate has not started, yet many analysts see deeper fiscal integration as the only viable roadmap out of the debt crisis for eurozone countries. Europe set up a monetary union without fiscal harmonization. And for Germany, a loss of financial sovereignty is about as attractive as, well, collectivizing debt through euro bonds.
Eric Westervelt, NPR News, Berlin.
INSKEEP: And you hear Eric on MORNING EDITION from NPR News. Transcript provided by NPR, Copyright NPR.
