BERLIN German Chancellor Angela Merkel accused other European leaders on Wednesday of wanting to put the cart before the horse by pressing for common bond issuance to fight the euro zone crisis before agreeing to tough new budget controls.
Speaking in the Bundestag lower house of parliament before a summit in Brussels on Thursday and Friday, Merkel did leave the door open for the first time to using proceeds from a proposed financial transactions tax (FTT) to boost growth and competitiveness in struggling euro countries.
But she offered no other obvious concessions to governments in Europe that have pushed Germany to drop its opposition to joint debt liability, and she sharply criticized a report from top EU officials released before the summit that suggested common bonds as a solution to the three-year old crisis.
"I fear that at the summit we will talk too much about all these ideas for joint liability and too little about improved controls and structural measures," Merkel said.
"Euro bonds, euro bills, debt redemption funds are not only unconstitutional in Germany but also economically wrong and counterproductive."
On Tuesday, Merkel told a closed-door party meeting that she did not expect joint euro bonds to be introduced in her lifetime. She did not go that far in her speech, but made clear that they could not be considered until euro states agreed to give up control over their national budgets.
"Joint liability can only happen when sufficient controls are in place. I would point out that neither the federal government and states in Germany nor countries like the United States or Canada have total joint debt liability for the bonds they issue."
As leader of Europe's biggest economy, Merkel faces enormous pressure to take radical steps to save the single currency bloc from a devastating breakup. Greece, Portugal and Ireland have all been bailed out, and both Spain and Cyprus will soon receive rescues.
Were another big country like Italy to require aid, the bloc's existing rescue funds would be quickly depleted, stoking fears of a catastrophic rupture.
Speaking after Merkel, the parliamentary leader of the opposition Social Democrats (SPD), Frank-Walter Steinmeier, accused her of misdiagnosing the crisis and lecturing others "like a schoolmistress".
"The crisis is cutting a swath through Europe, there is no end in sight, and the crisis is now reaching us," the former foreign minister said.
Merkel acknowledged that all eyes would be focused on Germany at the summit, saying she was "under no illusions" and predicting a "controversial discussion" with other leaders.
But she reiterated that Germany could only go so far to save the bloc. If Berlin did too much, it would have "unforeseeable consequences" at home and for Europe, she said.
"Germany is an engine for growth and an anchor of stability in Europe. But Germany's strength is not infinite, Germany's power is not unlimited, Germany's strength should not be overestimated," Merkel said.
One area where she did appear to signal a readiness to compromise was on the use of revenues from a proposed financial tax on buying and selling shares, bonds and derivatives that a group of about 10 euro zone countries want to introduce next year.
Merkel said she could envision using these funds to help boost growth and competitiveness in stricken European countries. Until now, Germany has said the proceeds from such a tax should flow back to the member states where they are raised.
(Reporting by Noah Barkin, Stephen Brown, Andreas Rinke, editing by Mike Peacock)