The Spanish plea came just ahead of an emergency conference call in which top finance officials from the Group of 7 large economies discussed Europe’s response to its crisis.
German Chancellor Angela Merkel has worried that without pressure from markets, troubled countries would lack the will to take the painful steps that she thinks are necessary to fix their problems for good.
Merkel’s bargain, requiring her neighbors to turn over tremendous power to the E.U., may not be acceptable to France or Italy — both of which want faster fixes and to keep more sovereignty — or to Britain, which does not use the euro but whose consent is necessary for any E.U.-wide fixes.
On Monday, Merkel said she would be open to a European banking union that would shift regulatory control of major banks away from nations and over to the E.U., calling for “more Europe, not less Europe.” European Commission President Jose Manuel Barroso has said he wants Europe-wide deposit insurance to be part of that, too.
And Germany has shown new interest in a proposal for commonly backed debt that was advocated by an influential independent council of economic advisers in November but that only recently started gaining traction. The proposal would pool all the debt of euro-zone countries that is more than 60 percent of each country’s gross domestic product, considered a marker for a healthy debt level, into a “European Redemption Fund.” Each country would pay off its portion over 20 to 25 years, at rates lower than what struggling countries are paying now, while putting strict limits on future borrowing into their constitutions. Then the fund would be closed.
“Unofficially you quite often hear from government officials that our proposal would be feasible. But it depends on other measures like a fiscal compact and further governance structures,” said Lars Feld, an economist who is one of the five members of the council.
No easy solutions
Merkel and the other leaders of euro-zone countries have tasked Barroso and other top E.U. officials with drawing up plans for shared banking resources that would include regulations, deposit insurance and funds to aid failing banks. Those plans will be presented at an E.U. summit June 28-29.
A smaller, German-government-backed plan to boost growth in the euro zone circulated in Germany on Tuesday, but it consisted of narrower measures such as boosting the lending power of the European Investment Bank and using existing E.U. funds for infrastructure investment, offering little new that would shift the broader course of Europe’s crisis.
For now, Germany’s emphasis is likely to remain on long-term measures that would vastly increase the centralized power of the E.U. in exchange for long-term German guarantees of financial support. If Spain’s problems worsen, Germany may be forced to change its approach.
“There are no straightforward solutions,” said Tanja Boerzel, director of the Center for European Integration at the Free University of Berlin. “I don’t know anyone who has a master plan and says this is going to work.”
Birnbaum reported from Berlin.