Two leading German ministers reiterated their opposition to issuing jointly guaranteed European government bonds as a means to end the eurozone's crippling debt crisis, a day ahead of a summit between German Chancellor Angela Merkel and French President Nicolas Sarkozy.
The debate over eurobonds intensified as the European Central Bank reported that it spent 22 billion euros ($31.7 billion) last week buying government bonds.
Analysts think a large chunk of the money splashed out was spent driving down the bond interest yields of Spain and Italy, who had seen their borrowing costs ratchet up sharply in the preceding weeks.
The ECB's purchases were the biggest weekly amount the bank has made under the emergency measure, exceeding the 16.5 billion euros it laid out when it started buying Greek government debt in May, 2010.
While stocks took a pounding last week, the program boosted Italian and Spanish bonds, pushing their prices up and interest yields — which move in the opposite direction — down. High bond yields were what drove Ireland, Portugal and Greece to seek bailouts from the European Union and the International Monetary Fund.
The bank is temporarily shouldering the burden of fighting the crisis until national parliaments approve new powers for the European Union's bailout so it can buy government bonds or help recapitalize banks if necessary.
Meanwhile European officials are searching for a more lasting way to solve the crisis, with some pushing eurobonds against resistance from Germany.
Finance Minister Wolfgang Schaeuble told German news magazine Der Spiegel in its edition dated Monday that eurobonds are out of the question as long as the currency zone's 17 nations still run their own budget policy, and that different interest rates for eurozone nations were needed to provide "incentives and the possibility of sanctions to enforce solid financial policy."
Schaeuble acknowledged that the EU must, and will, beef up its response to the crisis to assist the heavily indebted nations, but that "there won't be a collectivization of debt or unlimited assistance."
Merkel has long ruled out eurobonds, and Economy Minister Philipp Roesler joined the chorus Monday, describing jointly guaranteed debt as "the wrong way" out of the crisis.
"Eurobonds would mean that everybody shares the same interest burden which would be a punishment for (financially) sound nations," he was quoted as saying by German news agency dapd. "We cannot want this for Germany and for all other good states."
Eurobonds would be a major step toward the bloc's economic integration, and are billed by supporters as an overnight solution to the crisis. Italy, Greece, Belgium and Luxembourg are among the nations calling for eurobonds.
The proponents of eurobonds say they could drive down the borrowing costs for troubled eurozone countries immediately. On the other side, Germany has taken the lead, arguing that cheap credit without a powerful European institution overseeing the member states' budget and fiscal policy cannot be a solution.
The debate over eurobonds has ratcheted up ahead of Tuesday's meeting in Paris between Merkel and Sarkozy, though spokesmen for both leaders insisted that the topic would not be on the agenda.
"Eurobonds won't be an issue at the meeting tomorrow in Paris," Merkel's spokesman Steffen Seibert stressed Monday.
Instead, he said the two leaders will discuss strengthening financial and economic cooperation and governance across the eurozone.
"This is one of the lessons from the euro crisis ... we need a stronger economic cooperation across the eurozone," he added, declining to specify which concrete proposals will be discussed at the meeting.
An official in the French presidency also said that eurobonds were not on Tuesday's agenda.
The Franco-German summit follows a volatile period in global markets that saw investors increasingly worry that Europe's debt crisis would spread from the relatively small economies of Greece, Ireland and Portugal to much bigger Spain and Italy.
And last week, France was caught in the crossfire, with investors worrying about the financial health of the country's banks in particular and whether the country would be the next country after the U.S. to lose its triple-A credit rating. Shares in French banks plunged midweek before stabilizing along with the wider markets towards the end of the week.
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