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Germany Won’t Bend on Euro Bonds, Deputy Minister Steffen Says

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May 23 (Bloomberg) -- Germany’s economy isn’t strong enough to assume the debts of other countries and Chancellor Angela Merkel’s government won’t bend on its opposition to joint euro-area bonds, Deputy Finance Minister Thomas Steffen said.

“Euro bonds mean in effect that we would sign up for 100 percent liability for new debt in the euro area,” Steffen said in Berlin today. “We can’t do this, we’re not strong enough economically.” As a result, “I just cannot see that this federal government will relent on euro bonds.”

Merkel, who will attend a dinner of European leaders in Brussels today, is under pressure from counterparts including French President Francois Hollande to agree to underwrite debt in the 17-nation euro region. The summit comes a day after the Organization for Economic Cooperation and Development said the crisis in Europe risks spiraling and seriously damaging the world economy.

Steffen said that euro bonds should not be confused with so-called project bonds, which Germany finds acceptable. “They are completely different and we in Germany will try to re-channel the interest shown in euro bonds to feasible project bonds.”

He reiterated that sound budgets are the “right way” in Europe during the debt crisis and Germany won’t drop its belief in that approach.

With Greece’s anti-bailout Syriza party leading in polls before a second round of elections on June 17, Steffen said that Germany “will accept the outcome” of the vote and that financial markets must do likewise.

“It is a free vote of the Greek people and markets must accept that,” he said. “Still, while we will adhere to our pledges to the Greek people by honoring aid arrangements to 2014, we also expect from the Greeks that they will honor their budget pledges. It shouldn’t be a one-way street.”

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net

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

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