German finance minister details debt fund plan before EU summit

BERLIN Sat Dec 3, 2011 9:29am EST

Germany's Finance Minister Wolfgang Schaeuble holds his speech during the European Banking Congress 2011 in Frankfurt November 18, 2011.   REUTERS/Alex Domanski

Germany's Finance Minister Wolfgang Schaeuble holds his speech during the European Banking Congress 2011 in Frankfurt November 18, 2011.

Credit: Reuters/Alex Domanski

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BERLIN (Reuters) - Germany's Finance Minister spelled out details on Saturday of his proposal for national redemption funds for excess sovereign debt which he intends to present at a crunch summit of EU leaders next week aimed at restoring confidence in the euro.

Wolfgang Schaeuble outlined his plans under which states would effectively siphon off a chunk of their debt to a special national fund and pay it off over about 20 years while committing to reforms to keep debt levels on target.

Schaeuble believes his proposal, which has won qualified support from Chancellor Angela Merkel, would boost confidence as states would be sending a signal they were serious about limiting debt levels to 60 percent of gross domestic product.

Investors are desperate for a sign from EU leaders next week that they can find a solution to the more than two year-old debt crisis which is having a knock-on effect on the global economy. Merkel is pushing for binding EU rules on budget discipline.

"We need a redemption fund in every single country of the euro zone," Schaeuble told the Passauer Neue Presse.

"Each of these countries should put into a special fund that part of its debt which exceed 60 percent of its GDP, and should pay that off with tax revenues. Over a period of 20 years, the debt should be reduced to 60 percent," he said.

In Germany's case, the fund - covering federal, state and municipal debts - would amount to about 500 billion euros ($672 billion) as German debt is around 80 percent of its gross domestic product, said Schaeuble.

An earlier proposal this month from a panel of independent economic advisers to the German government which was rejected as unrealistic by Merkel, envisaged a European Redemption Pact.

That proposal, for a fund of up to 2.3 trillion euros, was anathema to Merkel because it suggested pooling excess debt into a fund with common liability.

Germany is dead set against any pooling of responsibility for debt within the euro zone, arguing states must themselves tackle their debt problems.

Schaeuble's plan has already hit opposition from Austria. Finance Minister Maria Fekter said on Friday any proposals that resulted in gathering billions of euros from taxpayers would encounter problems in national parliaments.

Merkel's spokesman welcomed Schaeuble's proposal as "interesting," saying it could help rebuild investor confidence.

However, it is far from clear whether Merkel will push the idea. Her main focus is securing a deal on changing EU treaties to force states to be more rigorous in budget discipline.


Merkel meets French President Nicolas Sarkozy on Monday to hammer out details on the changes they hope leaders will agree to at the December 9 summit.

World stocks and European bonds made gains at the end of last week on hopes euro zone leaders may be moving closer to a comprehensive solution to the crisis.

Merkel, who told her parliament on Friday there were no quick fixes to the crisis, wants the EU to have greater powers to stop national budgets if they risk breaching the budget rules and to punish offenders.

Merkel's spokesman dismissed a report in Focus magazine which said Germany and France would if necessary let the euro zone break up and make agreements with individual governments if treaty changes could not be agreed between all members.

"The German government's goal is to strengthen stability in the euro zone as a whole through a common set of rules for stricter budget discipline," the spokesman told Reuters.

The German government wants as many members as possible of the 27-member EU to sign up to the changes. British Prime Minister David Cameron threatened on Friday to obstruct the Franco-German drive for swift EU treaty change.

Schaeuble reiterated Germany's opposition to common euro zone debt issuance in the newspaper interview, as did Economy Minister Philipp Roesler, leader of the Free Democrats (FDP), a junior partner in Merkel's centre-right coalition.

He told the Frankfurter Allgemeine Sonntagszeitung that there would be no euro bond under this government.

Schaeuble also reiterated Germany's stance that the European Central Bank was independent.

Former European Commission head Jacques Delors blamed Germany for insisting the ECB must not support debt-stricken members of the euro zone for fear of fueling inflation in an interview with Britain's Daily Telegraph.

The euro's troubles spring from "a combination of the stubbornness of the Germanic idea of monetary control and the absence of a clear vision from all the other countries," he said.

(Additional reporting by Andreas Rinke; editing by James Jukwey)

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Comments (4)
FBreughel1 wrote:
Can somebody in Germany call back Mr. Schaeble again ? He’s having another one of his hallucinations. Yes, he has. AGAIN.

Look, putting lipstick on a pig still makes it what it is – a pig. If Germany is serious on 60 % debt of GDP level then make it so by increasing taxes or cutting expenses. My personal opinion is that Mr. Schaeble is straight out mad to set a level of 60 % – 80% would do well enough – but it is even more sad to use it as a tool to bring up that silly monsterfund of his again.

Dec 03, 2011 11:12am EST  --  Report as abuse
carlvzdj wrote:
If only people would appreciate what the Laws of Economics states on money, i.e. the subordinate substitute of human resources & energy, and the consequences it will have on the economy in every money transaction case. Our future is predictable by the extend we violate the three laws on which the entire universe is ordered, namely The Moral Laws, the Laws of Economics, and the Laws of Physics. The main issue we deliberately ignore is the fact that we deal in every case with “ENERGY”. For your information Google “The World Monetary Order”.

Dec 03, 2011 2:16pm EST  --  Report as abuse
There is nothing in the current article about urging governments to write business plans, like other economic entities, that explain how the money will be used to improve economic development that will raise the tax revenues for repaying bonds (debts) and continuing programs. I have suggested small business loans through entities similar to the US Small Business Administration that requires business plans to focus the thoughts of new entrepreneurs and to provide supporting ideas and information during the trying, early years of new enterprises. The EU needs to write and follow similar plans because gathering money in vaults doesn’t make the finance charges cease. The EU must create plans to use the money to make more money that will pay the finance charges and reduce the EU’s debts at a reasonable pace that provides confidence to investors.

Dec 03, 2011 3:44pm EST  --  Report as abuse
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