Merkel Must Pool Debt and Look to Versailles, CDU’s Lauk Says

Chancellor Angela Merkel will have to drop her resistance to pooling European debt and look toward the 1919 Treaty of Versailles as inspiration for a payment plan, according to the head of her party’s business caucus.

Kurt Lauk, president of the Christian Democratic Union’s Economic Council, said he would support pooling debt under certain conditions and establishing a time frame of as much as half a century to pay it off. Germany’s Versailles reparations payments weren’t completed for almost a century after the country signed the treaty following its defeat in World War I, he said.

“We have to find something equivalent for the European debt situation,” Lauk said today by phone from Stuttgart, adding that Merkel will have to agree to a debt-sharing arrangement to save the euro. “The German government will move before the European monetary union hits the wall.”

Merkel has decried proposals such as jointly issued euro bonds as a “collectivization” of debt that would revoke indebted states’ incentive to balance their budgets. Lauk said the German government won’t be able to avoid taking a step in that direction if it wants to overcome the two-year crisis.

Lauk suggested placing debt that exceeds 60 percent of a nation’s output into a centralized fund that would issue bonds with long-term maturity. The plan resembles one already put forward by Merkel’s council of economic advisers, a so-called European Redemption Fund, that would set up such a program in return for constitutional commitments on economic reforms.

‘Significant Concerns’

Germany’s opposition last month demanded Merkel reconsider the idea in return for their support in endorsing a euro-area fiscal treaty. The government has “significant concerns” about the legal viability of the plan and its accordance with EU treaties, Merkel spokesman Steffen Seibert said today.

Lauk said debt sharing would be acceptable to German voters as long as the cost it entails is placed in context with saving the single currency and ensuring its future.

Still, “if you present the German people with an open- ended bill -- let’s support these guys -- there will be a decisive ’no,’” Lauk said.

The CDU Economic Council’s website says it has 12,000 members and represents business interests to the German government.

To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.