European Union regulators may push for joint bond sales byeuro-area nations to help contain the debt crisis, putting pressureon Germany to drop its opposition.

The European Commission said it may present draft legislation oneuro bonds when completing a report on the feasibility of commondebt sales. The commission, the EU's regulatory arm in Brussels,earlier this year opposed such a step because of German-ledopposition.

“The report will, if appropriate, be accompanied by legislativeproposals,” EU Economic and Monetary Affairs Commissioner Olli Rehnsaid in a written response to a European Parliament question.“These euro securities would aim to strengthen fiscal disciplineand increase stability in the euro area through markets.” He gaveno timetable for either the report or any related draft law.

The idea of jointly sold bonds by the euro area's 17 nationsremains alive because unprecedented bailouts by governments and theEuropean Central Bank have failed to stamp out debt concerns thatbegan in Greece almost two years ago and rattled markets in AAArated France last week.

German Chancellor Angela Merkel yesterday reiterated herobjections to euro bonds, saying they are “not the right answer” tothe region's debt crisis. AAA rated Germany, Europe's largesteconomy, would face extra costs of 47 billion euros ($67.6 billion)a year through the alignment of interest rates with nations thatpay more to borrow, the country's Ifo institute said on Aug.17.

Southern Nations
Supporters of euro bondsinclude southern nations such as Greece and Italy,federalist-leaning Luxembourg and Belgium and leading members ofthe 27-nation EU Parliament. In this context, the commission underPresident Jose Barroso agreed last month to prepare a report on thefeasibility of euro bonds without specifying whether draftlegislation would be part of the exercise.

Rehn's response to the Parliament question is dated Aug. 12. Alegislative proposal would need the support of Europeangovernments. In July, Rehn said the feasibility study on commonbond issuance would be ready “toward the end of the year.”

The best-known joint-issuance model is the so-called blue-redone drafted by researchers at the Brussels-based Bruegel institute.It foresees euro-area governments selling common bonds to coverdebt up to 60 percent of each country's gross domestic product, thelevel deemed “sustainable” by the euro's founding treaty.

That tranche of “blue” bonds would carry a common interest rate.Debt over the treaty limit would be financed by “red” bonds, soldby each country on its own at penalty rates that provide anincentive to keep deficits down.

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