German Chancellor Angela Merkel stiffened her resistance to joint euro-area bond sales, saying that investors yearning for a single gesture that can end Europe’s sovereign debt crisis now will be disappointed.
The euro area has to resolve “that the time of living above our means is over once and for all” and pursue debt reduction that will stretch over “many years,” Merkel said in a speech to members of her Christian Democratic Union late yesterday in Magdeburg, eastern Germany.
While stepping up her rejection of a Greek default, she said that issuance of shared debt by euro countries isn’t the solution to the problem spilling from Greece, even though some may long for the “big bang” to end the debt crisis. “Whoever believes that has no clue about the economy,” she said.
Merkel stuck to her positions as she prepares for talks in Brussels today with European Commission President Jose Barroso before hosting French President Nicolas Sarkozy in Berlin on Oct. 9. The leaders of Europe’s two biggest economies will get together after the region’s finance ministers failed to quell market jitters that a second aid package for Greece aimed at stemming the crisis might unravel.
A Greek default would have unpredictable consequences, lead to speculative attacks on other highly indebted euro countries and risk sending German economic growth into reverse, Merkel said. Letting Greece default would trigger “a gigantic loss of confidence” in euro-area sovereign bonds.
“No one can say with certainty” what would happen if Greece defaults, she said. “Before I make a nifty step into an adventure, I have to ask whether we can really handle this and can we oversee what we are doing?”
Merkel said that her “entire council” of economic advisers says Greek debt should be restructured, advice that she is not prepared to take.
“If we tell a country ‘We cancel half of your debt,’ that’s a great deal,” she said. “Then the next guy will immediately show up and say he wants the same.”
“You can open any newspaper and see there’s a broad international debate,” she said. “I’m not an economist or a theorist. I and the German government have to consider the consequences of what we do.”
Merkel, speaking to the last of six regional conferences of her Christian Democrats before the party holds a national convention next month, said that she was “deeply convinced” that Europe’s problems can only be solved jointly.
“Solidarity is always cheaper than if we were to go it alone and wind up with the problem Switzerland has -- that the currency level is so high that you can’t export any products anymore. Today, going it alone is no path to a better future.”
“We must press ahead with the task” begun by former Chancellor Helmut Kohl when he made the political decision in favor of the euro after German reunification in 1990, she said.