UPDATE 1-French minister urges euro zone to start pooling debt
BERLIN Oct 30 (Reuters) - French Finance Minister Pierre Moscovici urged the euro zone on Tuesday to take a first step to mutualise its short-term debt, stopping short of jointly-issued "Eurobonds" which he recognised German Chancellor Angela Merkel's government flatly rejects.
"We are not talking any more about Eurobonds. I know it is a red line here in Germany, for some, the present government among them," Moscovici said at a conference alongside his German counterpart, Wolfgang Schaeuble.
"What I mean is that we need to address together the debt issue, and this must be backed by all 17 members of the euro zone, in order to pool some short-term sovereign funding instruments to build a first step towards some kind of mutualisation of the debt," said Moscovici, speaking in English.
Merkel has categorically ruled out the creation of Eurobonds as long as she is in power, arguing that they remove the incentive for member states to get their own budgets in order. She is expected to seek a third term in power next September.
Moscovici appeared to be endorsing a proposal dating from late 2011 for short-term common debt instruments for the currency zone known as "Eurobills".
The proposal by two economists - one of whom, Thomas Philippon, is now an adviser on Moscovici's staff - involves setting up a new euro zone debt management office.
The right to issue jointly underwritten bills, with less than one year's maturity, would depend on meeting EU deficit targets and economic policy goals.
EU Economic and Monetary Affairs Commissioner Olli Rehn gave the proposal some traction in a paper a year ago, depicting Eurobills as a stepping stone toward fully fledged "stability bonds". But formal discussion among ministers has met German opposition.
Merkel included Eurobills on a list of ideas that she described as "economically wrong and counterproductive" just before an EU summit in June.
The French and German ministers both backed the idea of a special budget for the 17 members of the euro zone, alongside the budget for the 27-nation European Union. Moscovici said it would act as "an automatic stabiliser on matters that are key to the success of our monetary union".
"Such a budget would not replicate, in my view, the existing EU 27 budget," said Moscovici.
Schaeuble's proposal for giving radically-expanded powers to veto member states' budgets to Europe's commissioner for monetary affairs won backing this weekend from European Central Bank chief Mario Draghi in a German media interview.
The German minister said giving Rehn the same legal powers as Competition Comissioner Joaquin Almunia, who can veto mergers that inhibit competition on his own authority, "would give much more credibility to the actual implementation of European law".
Moscovici and Schaeuble both urged the European Parliament - whose president, Germany's Martin Shulz, spoke on the same panel in Berlin - to enable its members from euro zone states to act separately on issues affecting the single currency.
This would get around the problem that each major decision by the euro zone requires approval by 17 member states' national parliaments, slowing policymaking, said Schaeuble.
The German and French ministers were due to hold a short private meeting at 11 a.m. (1000 GMT) ahead of a phone call on Wednesday among euro zone ministerial experts about the results of "troika" mission to Greece to check on its reform progress.
Speaking to reporters before the conference, Moscovici declined to go into details about what he and Schaeuble would discuss on Greece, but said: "We are at the moment in the conclusive phase of the negotiations."