When they meet today in Berlin, David Cameron intends to tell Angela Merkel that she must back the introduction of Eurozone-wide bonds to stem the crisis.
I’m glad to hear that Mr Cameron is now supporting our policy on Eurobonds. This is an idea that has been championed for years by the group of European Socialists and Democrats in the European Parliament.
The basic principle is that instead of individual Eurozone members issuing bonds, Eurobonds would be collective loans, underwritten by all Eurozone countries. Because of the risk of defaulting, EU countries which are in real financial trouble, such as Greece, Portugal, Ireland, Spain and Italy, are only able to secure loans from investors with very high interest rates. This makes the cost of repaying their debts huge. However, if investors had the guarantee that stronger countries such as Germany and France were behind the debts, then the interest rates would be a lot more manageable. For example, Portugal’s annual repayments would fall by €15bn, almost 9% of its GDP, if the interest rate was lowered to the Eurozone average.
Behind the proposal is the principle of solidarity, of working together to help Europe overcome this crisis. Doesn’t sound much like Cameron to me. The man that walked out of talks in December, leaving Britain’s seat at the table vacant, is now trying to convince Germany to solve the crisis at an EU level. Cameron, the Eurosceptic, is preaching the virtues of solidarity and further European integration from the sidelines.
Luckily there are more credible voices fighting for Eurobonds. The Italian and Spanish governments are in favour, as is the head of the European Central Bank. Most importantly, of course, the election of François Hollande and his backing of Eurobonds and other progressive measures has signalled a sea change across Europe. But Chancellor Merkel remains firmly opposed.
One of Angela Merkel’s main arguments against Eurobonds is that she thinks they would remove the incentive for failing economies to put their affairs in order. But what we’re seeing in Greece is heartbreaking, people who were working and paying taxes this time last year are now queuing up in the streets for soup. That’s no solution. And with Spain teetering on the brink, surely intervention at this stage will be much less painful for all of us, rather than trying to rescue the EU’s fifth biggest economy once it is too late. Because it’s clear that if Spain goes down then we’ll feel a real chill here in the UK and in the rest of the EU.
The next few weeks will be crucial for the future of Europe, and Eurobonds are one of a few measures that could be taken now to stabilise the situation. We need brave decision-making, and I hope that Chancellor Merkel changes her stance. If she does it will be thanks to the campaigning of the centre-left across Europe, now spearheaded by François Hollande, not because of some last minute nagging by David Cameron.