Chancellor Angela Merkel’s spokesman said that Spain knows where to look for aid if it’s needed, giving no ground to Prime Minister Mariano Rajoy’s pleas that Germany consider new ideas to resolve the debt crisis.
As markets brace for further deterioration in Spain’s finance sector and a possible Greek departure from the 17-member euro area, the Canadian government said that finance ministers and central bank governors from the Group of Seven countries will hold a conference call tomorrow to discuss the European debt crisis.
Rajoy sought to open a new avenue of crisis fighting on June 2, when he added his voice to calls for a “banking union” in Europe involving a centralized system to re-capitalize lenders. Merkel shut off another potential solution the same day as she toughened her opposition to euro-area debt sharing, telling members of her party that “under no circumstances” would she agree to euro bonds.
Options “that resemble euro bonds” are conceivable after a process of European integration lasting “many years,” Merkel’s chief spokesman, Steffen Seibert, told reporters in Berlin today. For now, “it’s up to national governments to decide whether they want to avail themselves of aid from the backstop and accept the conditions linked to it, and that of course also applies to Spain.”
As euro-area unemployment reached its highest level on record, manufacturing output contracted for a 10th straight month in May and the currency plunged close to a two-year low against the U.S. dollar, leaders continued to wrangle over the details of support for the currency bloc. President Barack Obama meanwhile laid the blame for sluggish U.S. employment at the feet of euro-area leaders, saying they haven’t done enough to resolve the crisis, now in its third year.
European and Asian stocks fell, with Chinese shares in Hong Kong headed for a bear market. The Stoxx Europe 600 Index (SXXP) slid 0.4 percent at 4:04 p.m. in Frankfurt after the Hong Kong Hang Seng Index dropped 2.3 percent. The euro was up 0.5 percent against the dollar to $1.2493.
Merkel will discuss proposals on closer banking coordination when she meets today in Berlin with European Commission President Jose Barroso, Commission spokeswoman Pia Ahrenkilde-Hansen said today in Brussels. Merkel and Barroso will make a statement at 7 p.m. local time.
Renewed pressure on the German leader came from French Finance Minister Pierre Moscovici and EU Economy Commissioner Olli Rehn, who said that a first step toward a banking union should be to allow the euro’s permanent rescue fund inject cash into banks instead of channeling it through governments.
“We have been considering this as a serious possibility of breaking the link between the sovereigns and the banks,” Rehn told reporters today in Brussels. “It is important to consider this alternative of direct bank recapitalization.”
Germany will await European Union proposals on a banking union, Finance Ministry spokesman Martin Kotthaus said.
“With the term ’banking union’ there are not only a lot of different concepts,” Kotthaus told reporters in Berlin. “The term is used in many contexts with many different ways of understanding it.”
Merkel’s coalition parties, meeting in Berlin, “stress that all tools stand ready to ensure the safety of banks in the euro zone,” the government said in a later e-mailed statement.
Merkel and Finance Minister Wolfgang Schaeuble have urged Spain to accept an international bailout, Der Spiegel magazine reported in this week’s edition, without saying where it obtained the information. Spain’s El Pais said yesterday that the EU is also pressing Spain to accept funds, citing unidentified officials in Brussels.
“If aid is needed, everybody knows that Europe stands ready, that Europe shows solidarity and that Europe has aid instruments available,” Seibert said, when asked about the report. “But the decision on that rests solely with the Spanish government.”
Yields on German two-year notes fell below zero for the first time ever last week as investors fled riskier sovereign debt. Spanish bonds dropped for a fourth week, pushing the country’s 10-year yields above 6.5 percent — nearing the 7 percent threshold which triggered the three earlier bailouts.
Spain plans to sell bonds maturing in 2014, 2016 and 2022 on June 7. The amount hasn’t yet been set.