Steffi Loos, AP Photo/dapd
BERLIN — German Chancellor Angela Merkel vowed Friday to resist pressure for quick fixes to the European crisis when she meets world leaders at the Group of 20 summit next week, saying Europe must tackle its problems "at the roots" by lowering debt and increasing economic competitiveness.
Amid mounting criticism of her austerity-led approach and alarm at the prospect of the crisis spreading further, Merkel insisted that fueling growth by running up more government debt isn't the answer.
She acknowledged that Germany — Europe's biggest economy and the biggest contributor to efforts — will be a focus of attention at next week's G-20 summit in Mexico.
"I will say there, and I say it here too: Germany will not be convinced by all the quick solutions like eurobonds, stability funds, European deposit insurance funds," Merkel said in a speech to a conference organized by a group representing German family-owned companies.
French President Francois Hollande has revived pressure lately for jointly issued government bonds, or eurobonds — a move that would likely lower the borrowing costs of struggling eurozone countries but increase those of financially solid countries such as Germany. Berlin has always fiercely resisted the idea in the short term, and shows no signs of relenting.
"You can only resolve a crisis of confidence if you tackle things at the roots," Merkel said Friday. "I argue for addressing the roots and not fighting symptoms." She pointed to two major problems — high government debt and some countries' lack of competitiveness.
She argued that, in the early days of the euro, debt markets in Europe acted as though there had been eurobonds — southern European countries with weak public finances could raise money at cheap rates simply because they were part of the eurozone, which investors assumed was a guarantee of financial stability.
Only in recent years, when it became clear that some countries, like Greece, could default on their debts, did investors readjust their views on how risky some countries' debt was.
Merkel noted that in the early years of the euro, countries did not take advantage of their low borrowing rates to make their economies more competitive, suggesting they would not do so now, either, if there were eurobonds.
"We have to learn that growth based on higher government debt ... growth driven by infrastructure, by fast investments, as we see in Spain for example, is not sustainable and will rather increase the problems than decrease them," Merkel said. The troubles of Spain, which last weekend sought a rescue package for its banks, stem from a construction boom that collapsed.
She also insisted that portraying Europe's choice as one between solid finances and growth is wrong.
"It is simply garbage to present the alternatives that way," she said. "I say that solid budget conduct is the necessary condition for successful economic growth. Solid budget conduct alone is not enough but, without it, there will be no sustainable, sensible growth in the long term."
The chancellor reiterated her call for a long-term drive toward greater European integration, with countries ultimately handing over more powers to European authorities, as the answer to the crisis.
"There will in the long term be no good economic and currency union without a political union," she said. "That it is a Herculean task, that it is laborious, that it is a long process ... that is right, but I consider it unavoidable."
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