On Thursday afternoon, EU leaders failed to agree for a third time on the scale of support for their economies battered by the coronavirus pandemic and gave themselves two more weeks to work out details. Backed by France, Spain and seven other eurozone countries, Italy wants a “European recovery bond” or “coronabonds” – namely, EU-backed debt to lift member states out of a recession and increase spending on healthcare. However, the idea of shared debt remains anathema to Germany, Austria and the Netherlands, who shunned the similar concept of “eurobonds” during the eurozone crisis a few years earlier.
German Chancellor Angela Merkel said: “Some member states … suggested those ‘coronabonds’.
“We said that this is not the point of view of all member states.
“And that’s why the European Stability Mechanism (ESM) is the preferred instrument for me.”
Her ally Dutch Prime Minister Mark Rutte said the ESM would be the “last resort”, that conditions still need to be agreed and that The Hague would not back joint debt.
As the crisis is set to deepen, unearthed reports suggest Mrs Merkel’s intransigence proved to be incredibly deleterious nine years ago.
According to Hungarian-born currency speculator George Soros, it was the German Chancellor’s decision to block a joint EU guarantee that explained why the euro crisis turned out to be so catastrophic.
At the height of the European debt crisis in 2011, several eurozone member states – including Greece, Portugal, Ireland, Spain and Cyprus – were unable to repay or refinance their government debt.
Mr Soros claimed that Mrs Merkel’s insistence that there should be no joint EU guarantee and that each country would have to take care of its own institutions was “the root cause” of the eurozone crisis.
In an op-ed for the Financial Times in 2011, Mr Soros wrote: “Angela Merkel, Germany’s Chancellor, insisted there should be no joint EU guarantee: each country would have to take care of its own institutions.
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“That was the root cause of today’s euro crisis.
“The financial crisis forced sovereign states to substitute their own credit for the credit that had collapsed and, in Europe, each state had to do so on its own, calling into question the credit-worthiness of European government bonds.”
Mr Soros also suggested that Mrs Merkel might have not seen how it would be disastrous for the eurozone as a whole, because Germany is her homeland.
He explained: “As the largest creditor, Germany could dictate punitive terms of assistance, which pushed debtors towards insolvency.
“Meanwhile, Germany benefited from the euro crisis, which depressed the exchange rate and boosted its competitiveness further.”
The Hungarian-born currency speculator, now a US citizen, became known as the “man who broke the Bank of England” after he bet against the pound in 1992, forcing Britain out of the European Exchange Rate Mechanism.
Germany, a leading nation in the Greek bailouts, did indeed earn huge sums in interest payments since the financial crisis.
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In 2010, eurozone countries bought €210billion of government paper, including Greek bonds, in order to provide greater liquidity to the EU’s banks as the Greek debt crisis unfolded.
According to figures obtained from Mrs Merkel’s government by Germany’s Green Party in 2018, Germany received €2.9billion (£2.5billion) in interest payments on Greek bonds that were bought through a now-defunct bond-buying programme.
Germany also received a total of €400million (£341million) on a loan from the KfW Development Bank.
The original agreement between Berlin and Athens was for any interest earned on the bonds to be paid back to Greece when it fulfilled its reform obligations.
However, Germany repaid €527million (£449million) of interest payments to Athens in 2013 and €387million (£330million) in 2014.
After Greece’s second bailout programme was agreed in 2015, those repayments stopped, and Berlin accumulated the ongoing interest.
Therefore, Germany is reportedly €2.5billion (£2.1billion) in profit, plus interest of €400million (£341million) on a loan from the KfW development bank.
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