Angela Merkel, the German chancellor, has ruled out two of the most widely-backed ideas for combating the eurozone debt crisis, saying she saw no need to increase the size of the European Union’s €440bn rescue fund and that the bloc’s treaties did not allow for the creation of a Europe-wide bond.
The German rejection leaves the European Central Bank’s aggressive purchase of eurozone sovereign debt as the main weapon for the EU in fighting to keep the two most vulnerable countries, Portugal and Spain, from being forced into a bail-out.
Proposals to increase the size of the bail-out fund gained momentum over the weekend when Didier Reynders, the Belgian finance minister who chairs the EU’s economic affairs council, backed the move and said it had support from the International Monetary Fund. ECB officials have also signalled their support for the increase.
Mr Rehn said he found the idea of a Europe-wide bond to be “intellectually attractive”, but noted that a similar proposal was rejected by member states at the height of the Greek debt crisis in May.
Since the ECB began stepping up its round of bond purchases late last week, the borrowing costs for countries such as Portugal and Spain have begun to ease, but the market remained unsettled on Monday amid low trading volumes.