Tuesday, January 25, 2011

Jean-Claude Juncker on Saving the Euro
'It Would Be Wrong to Create Taboos'

SPIEGEL: You recently proposed that the countries of the European Union issue joint bonds, known as euro bonds, to combat the debt crisis. Chancellor Merkel, on the other hand, saw this as an attempt to introduce a European "transfer union" through the back door. Have you abandoned your idea in the meantime?

Juncker: I had to accept that there is no majority support for my proposal at the moment. But I am confident that this will change one day. Euro bonds have a totally inaccurate image in Germany. If properly designed, they would be a tool to encourage countries with unsound finances to practice stronger budgetary discipline.

SPIEGEL: You can't possibly believe that. If governments like the Greek government can go into significant debt at the expense of the bloc, they'll have no incentive whatsoever to practice austerity.

Juncker: The opposite is true. Under our proposal, only those who commit themselves to strict fiscal discipline will have access to euro bonds.
SPIEGEL: But it would mean that the interest burden would rise considerably in Germany.

Juncker: Not at all. Euro bonds would create a large, homogenous market for European government bonds. For the first time, Europe could compete with the American bond market as equals. As a result, German interest rates could even fall.

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