Ahead of a vital European Union (EU) summit, the German Chancellor, Angela Merkel has rejected calls from Spain and Italy to take action to lower their spiraling borrowing costs.
Speaking to the German parliament Ms Merkel criticised EU officials for proposing the idea of linking all European debt before austerity measures are agreed to limit national budgets and debt levels.
Adopting a negative stance before the summit begins on Thursday evening the German leader said that she was concerned the summit would focus too much on “joint liability” and not enough on “improved controls and structural measures.”
Ms Merkel did not reject the idea of joint liability completely but said controls must be in place to allow the EU to intervene and override national budgets before such a measure could be implemented.
It has been reported that earlier in the week Ms Merkel said she did not expect to see total shared liability “in her lifetime.”
Both Spain and Italy have seen surging yields on government bonds that are not sustainable and earlier in the week Spain was formally offered a €100 billion bailout. Cyprus became the fifth country to receive a bailout from the EU this week.
Spanish Prime Minister, Mariano Rajoy told the Spanish parliament today that the current near seven per cent yield is unsustainable. Mr Rajoy also said that urgent measures needed to be agreed at the summit to allow fragile economies to find ways of refinancing their debts.
Italian Prime Minister Mario Monti said on Tuesday that he is prepared to negotiate all weekend to find a solution that placates the financial markets.
French President, Francois Hollande is believed to support using the eurozone’s bailout fund backed by the European Central Bank to be used to help bring down Spain and Italy’s borrowing costs. However, this proposal will be met with fierce opposition by Germany.
Italy and Spain argue that they are already imposing extremely tough measures on the population and that they need some flexibility and help to keep interest rates down.
Since the election of the new socialist French President there has been wider support for these measures, but not from Germany who have most control over EU money and therefore the biggest say on how to use it.
European stock markets were down in early trading but by mid-afternoon the FTSE 100, German Dax and French Cac indexes were all up by between 1.25 and 1.50 per cent.
Twitter: My Finances
Join the conversation at #news_myfinances