Germany in euro redemption plea

DETAILS of a last-ditch bid to prevent the euro from drifting towards collapse have been spelled out by Germany’s finance minister ahead of a crunch summit of Eurozone leaders later this week.

Wolfgang Schauble outlined plans under which states would effectively siphon off a chunk of their debt to a special national “redemption” fund, and pay it off over around 20 years, while committing to reforms to keep debt levels “on target”.

“We need a redemption fund in every single country of the Eurozone,” he told a German newspaper. His remarks came as Jacques Delors, the architect of the single currency, said that the Eurozone was flawed from the start.

Delors, former president of the European Commission, suggested that “a fault in execution” had doomed the euro to its present crisis.

The creation of “redemption funds” – which every state within the Eurozone would have – would boost confidence in the single currency, according to Schauble, and show investors that Europe was serious about limiting debt levels to 60 per cent of output.

Investors are desperate for a sign from EU leaders that they can solve the debt crisis debilitating the global economy.

“Each of these countries should put into a special fund that part of its debt which exceed 60 per cent of its gross domestic product, and should pay that off with tax revenues. Over a period of 20 years, the debt should be reduced to 60 per cent,” he said.

The German government wants as many members as possible of the 27-state EU to sign up to the changes. Prime Minister David Cameron threatened on Friday to obstruct the Franco-German drive for a swift EU treaty change. German chancellor Angela Merkel meets French president Nicolas Sarkozy tomorrow to hammer out details on the changes they hope leaders will agree at the 9 December summit.

His proposals, which will be laid out to leaders at a summit in Brussels this week, came after chancellor Merkel sought to calm the financial markets last week by demanding that member states stopped talking about a fiscal union and started to create one.

Following her intervention interest rates on Italian and Spanish government borrowing fell sharply and markets rose on hopes that politicians are now taking the financial crisis seriously, and realise the impact a breakup might have.

Apparent commitment to solving the Eurozone crisis in recent days has already led to the FTSE 100’s best weekly performance in three years, and the creation of redemption funds would give the markets greater confidence.

The proposals by Schauble came as Delors critcised efforts to tackle the problems in the Eurozone as “too little too late”. Delors, head of the EC from 1985 to 1995 and known for his clashes with Prime Minister Margaret Thatcher, said leaders in the 1990s chose to turn a blind eye to the economic weaknesses of some member states, and the response, now the issues had resurfaced, had generally been inadequate.

The lack of action has led to the markets being “bedevilled by uncertainty”, he argued.

“The finance ministers did not want to see anything disagreeable which they would be forced to deal with,” he said.

Delors insisted that all European countries had to share the blame for excessive borrowing by countries such as Italy and Greece that have brought the system to the brink of disaster. “Everyone must examine their consciences,” he added.