Chancellor Angela Merkel rejected quick solutions proposed to fix Europe’s financial crisis such as joint debt sharing, saying Germany can’t save the world economy alone and fellow Group of 20 countries must help.
Merkel, in a speech to parliament in Berlin today, said the debt crisis and Germany’s role in stemming it will be the “central topic” at next week’s G-20 summit in Mexico. While Germany will use its strength “in the service of European unity,” the euro and the global economy, Merkel said she opposes “seemingly easy” solutions that risk backfiring.
“All eyes are on Germany,” she said. “But we also know that Germany’s power is not infinite. So our responsibility as Europe’s largest economy is to deploy our strength credibly, so that we can be of full use to Europe.”
Merkel signaled a showdown with global peers at the June 18-19 meetings over ending the crisis that has made Spain the fourth euro-area country to need a bailout and driven up Italy’s borrowing costs. Finding a solution is a “Herculean task” that requires European nations to embrace “political union” step by step, giving up some national powers in the process, she said.
Merkel will travel to the G-20 summit in the Pacific coastal resort of Los Cabos as Greece votes in June 17 elections that may determine its fate in the euro region. Spain’s announcement that it will ask for as much as 100 billion euros ($126 billion) in aid for its banks has meanwhile failed to quell global turmoil in financial markets that President Barack Obama says is harming the U.S. economy in an election year.
Spanish lenders’ net borrowings from the European Central Bank jumped to a record 287.8 billion euros in May, highlighting the financial system’s need for funding before Spain’s bailout.
European policy makers “recognize they’re going to have to do a bunch more,” U.S. Treasury Secretary Timothy F. Geithner said in Washington yesterday. “The world’s going to have a chance this Monday and Tuesday in Mexico at the G-20 meeting to hear from them where they plan to go next.”
Merkel pushed back against her critics, pressing the U.S. and Japan to reduce their debt, urging China and other emerging economies to make exchange rates more flexible and saying the world must “resist the temptation” to spur growth with deficit spending.
“The reasons for the sickly world economy truly don’t lie only in the euro zone,” Merkel told lower-house lawmakers. It’s “indispensable” that G-20 leaders pledge budget consolidation in a joint action plan they will pass in Mexico.
As the crisis threatens to engulf Italy, Merkel’s speech also amounted to a rebuff of fellow European Union leaders including French President Francois Hollande and Italian Prime Minister Mario Monti, both of whom are calling for Germany to underwrite joint euro-area debt.
Italy sold 4.5 billion euros of debt today, with its 3-year benchmark bond to yield 5.3 percent, up from 3.91 percent at the last auction one month ago and the highest paid since December.
Budget austerity and measures to promote growth in Europe remain the twin pillars of stemming the crisis right now, Merkel said. Her message that Germany can’t shoulder the burden alone is aimed at “all those in Los Cabos will be looking to Germany, who are expecting the ‘big bang’ and the solution from Germany -- such as euro bonds, stability funds, European deposit-insurance funds, additional billions and much more,” she said.
“All resources, all measures, all packages will end up being smoke and mirrors if it becomes clear in the end that they extend beyond Germany’s capacity,” she said.
At the same time, Germany is committed to the project of uniting Europe and the currency union that has grown to 17 members, which was born flawed 20 years ago because the European Union wasn’t a political union, Merkel said.
“So it’s our obligation today to do what has been neglected, to break the vicious circle of generating ever more debt and breaking the rules,” she said. Germany is “convinced that Europe is our destiny and our future. If the euro fails, Europe fails.”