The official line is that Angela Merkel does not care for euro-bonds.
However, The Economist reports that behind closed doors, she and her allies may not be so sure.
Euro-bond detractors argue that if created, the bonds would remove the incentive for indebted countries to clean up their balance sheets by creating “transfer union.” And the haters are:
- The two smallest parties in Merkel’s coalition — the liberal Free Democrats (FDP) and the Christian Social Union (CSU).
- Guido Westerwelle, German Foreign Minister and head of the FDP.
- Philipp Rösler, German Finance Minister.
But there are some within Merkel’s own party, the Christian Democratic Union (CDU), that disagree. They argue that the “transfer union” already exists through the ECB buying billions of Italian and Spanish government bond, and they’re pushing for the idea to be debated on the floor of the Bundestag.
Put simply, there’s a very real chance Merkel’s coalition could collapse over euro-bonds, and Merkel’s best chance might be an attempt to form a union with the opposition Social Democrats (SPD), which has warmer feelings towards Eurobonds.
Regardless of what happens, this coalition in-fighting isn’t helping markets, who were not convinced that drastic enough action is being taken after Merkel’s meeting with French President Nicolas Sarkozy on Tuesday.