The European Commission will soon present options on how the euro zone might issue bonds jointly, its President Jose Manuel Barroso said on Wednesday, but warned there was no simple solution to a debt crisis that threatens Europe's economic and political future.
Speaking to the European Parliament, Barroso said Europe faced its most serious challenge in a generation.
This is a fight for the jobs and prosperity of families in all our member states. This is a fight for the economic and political future of Europe. This is a fight for what Europe represents in the world, Barroso said.
Germany remains adamantly opposed to debt that would be jointly issued and underwritten by all 17 members of the currency bloc.
A ruling by Germany's top court last week has made it virtually impossible for Berlin to sign up to joint euro bonds even if it wanted to, legal experts say.
But the euro rose against the dollar, European shares turned positive and safe-haven German government bonds pared gains after Barroso told lawmakers the Commission, as previously promised, would shortly present the options.
Barroso warned such bonds offered no magic bullet to end the crisis and Olli Rehn, the EU commissioner for economic and monetary affairs, said they could only be introduced if accompanied by much tighter fiscal oversight.
To my mind it is clear that euro bonds, in whatever form they were to be introduced, would have to be accompanied with a substantially reinforced fiscal surveillance and economic policy coordination as an essential counterpart so as to avoid moral hazard and ensure sustainable public finances, said Rehn.
Of course this would have implications for fiscal sovereignty of member states, which calls for a substantive debate in the (respective) euro area member state, to see if they would be ready to accept this.
Answering those who have called for Greece, whose excessive borrowing was the spark for the debt conflagration, to default and restructure its debts or to leave the euro zone, Rehn said such a move would have harsh consequences.
Let me say a word to those suggesting that Greece would be better off outside the euro. I very strongly disagree. Neither Greece nor the euro zone would be better off, he said.
Whatever way you look at it, it is absolutely certain that a default and/or exit of Greece from the euro zone would carry dramatic economic and social and political costs, not only for Greece but also for all other euro area member states and EU member states, as well as for our global partners.
In an emotive plea for the European Union, and particularly the 17 members of the euro zone, to work more closely together, Barroso said the only way to stop the negative cycle in financial markets was to deliver deeper integration.
He urged that to come not via Germany or France taking their own initiatives that other, smaller member states were expected to follow, but via what EU officials refer to as the community method, where Brussels leads the initiative.
European leaders have been battling to get on top of the debt crisis for more than 18 months. Their latest move, adopted on July 21, was to strengthen their 440 billion euro ($600 billion) bailout fund, the EFSF, by allowing it to buy bonds in the secondary market and to lend pre-emptively to governments in distress.
But those decisions, which require parliamentary approval in the majority of member states, have not yet been fully implemented, leaving vulnerable debtor countries under intense pressure in the financial markets.
Barroso echoed European Central Bank President Jean-Claude Trichet and other officials in calling for the quickest possible ratification of the Jul. 21 agreement, saying it was critical to show that Europe could deliver on its commitments.
Solid, feasible and concrete proposals have been made. They have been agreed upon. But they have taken too long and have not yet been fully delivered, he said.
(Writing by Luke Baker; Editing by Rex Merrifield/Catherine Evans/Ruth Pitchford)