Too many conflicting statements aggravate eurozone doubts (VIDEO)

Contradictory statements made by eurozone politicians to domestic audiences have underlined the fragility of last week’s deal to rescue Greece and unsettled financial markets already on edge due to the US debt impasse. (Watch video below)

Greek Prime Minister George Papandreou told lawmakers from his PASOK socialist party on Wednesday that debt-stricken Athens will effectively receive the first joint eurobonds in the form of loans at close to cost price from the euro zone’s rescue fund. “The decision of our European partners to lend us at 3.5%, an interest rate just above the one at which Germany itself is borrowing, is in essence tantamount to introducing a European bond, regardless of the fact that this system has not been completed yet,” he said.
His comments may inflame critics of eurozone bailouts in Germany and other Northern European countries, who vehemently oppose any mutualisation of fiscal risk in the 17-nation single currency area. The remarks may also irk Spain and Italy, indebted economies that are paying high yields on their bonds.
Germany, which previously insisted on charging an interest rate premium on ‘deficit sinners’ to deter moral hazard, relented at last week’s summit and accepted that the high borrowing rate was counter-productive for countries mired in recession.

But common eurozone bonds remain anathema in Berlin, where fiscal conservatives are warning against the euro zone becoming a “transfer union” in which hard-working German taxpayers’ money would be poured into a bottomless pit.

German Finance Minister Wolfgang Schäuble sought to assuage critics in the ruling coalition, assuring lawmakers that the summit did not give the eurozone rescue fund “carte blanche” to buy bonds of states in difficulty.  

“Even in the future, such purchases should only take place under very strict conditions when the European Central Bank deems there are exceptional circumstances on the financial markets and dangers for financial stability,” Schäuble said in a letter dated 26 July, obtained by Reuters on Wednesday. “The government rejects a ‘carte blanche’ for widespread purchases on the secondary market.”

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