BERLIN — European leaders are set to descend on Brussels on Wednesday for a showdown over suggested drastic remedies for the region’s debt crisis, even as fresh signs emerge that Europe’s escalating woes could plunge the region into a recession capable of undercutting the global economic recovery.
Officials from Germany, the continent’s industrial powerhouse, say that they remain implacably opposed to a proposal to allow euro-zone countries to borrow money with the backing of all 17 countries that use the currency — an idea that has been pushed by French President Francois Hollande and others — but that they are open to the possibility of smaller measures. Emphasizing the stakes, a major economic organization said Tuesday that Europe is teetering, as it forecast recession for the euro zone and growth for the United States.
There may be a few small sparks across Europe, but the continent's financial outlook remains resolutely gloomy. The OECD warned Tuesday that risk of recession is rising in the 17-country eurozone that could drag the global economy down.
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The push for common borrowing, or euro bonds, would be a major step in the direction of a fully integrated euro-zone economy, creating a titan that would rival the U.S. economy in size and strength. Such newly issued bonds could restore reasonable borrowing rates for troubled economies such as Italy and Spain by putting the might of Germany’s frugal taxpayers behind them.
Despite the support for the measure voiced by a growing number of European leaders, however, German officials bluntly ruled it out Tuesday.
“You can wake me up in the middle of the night, at 3 a.m., and I will tell you our position. Or 5 a.m., it doesn’t matter. We think that euro bonds are not the right path for many reasons,” a senior German government official told reporters in Berlin, under a customary ground rule of anonymity.
The opposition from Berlin appears to cut off any discussion of major steps toward common borrowing, because the advantages of pooled credit would come mainly at Germany’s expense. German officials have said that euro bonds can be considered only after other countries have slashed their debt and committed to tough rules on fiscal responsibility. The proposal also faces substantial legal hurdles, given that Germany’s constitutional court has ruled that German taxpayers’ money cannot be used to bail out foreign nations mired in debt.
In addition, Germany has expressed skepticism about proposals to allow the euro zone’s bailout funds to go directly to troubled banks to help boost their capital, in part because it fears that loosening the rules could become a back-door way to finance government borrowing.
Germany’s hard line comes as more voices are being raised in favor of debt-sharing measures. Last weekend, British Prime Minister David Cameron endorsed the idea of euro bonds, even though his country does not use the euro. On Tuesday, International Monetary Fund Managing Director Christine Lagarde called for more steps toward common debt, though she also praised the tough economic measures Germany has advocated, such as opening labor markets.
“More needs to be done, particularly by way of fiscal liability-sharing,” Lagarde told reporters in London, the Reuters news agency reported.