Merkel set to stand firm on eurobonds taboo

Herman Van Rompuy raised eyebrows on Monday when, in his letter inviting European Union leaders to Brussels for tonight's meeting about ways to boost growth and jobs, he remarked that "at the very end of our dinner, I propose that we discuss recent developments in the eurozone". The president of the European Council also emphasised that the discussions would lead to no firm decisions or conclusions and, instead, encouraged an "open and frank" exchange of views with "no taboos concerning the longer term perspective".

Given the immediacy of the crisis in Greece – with the country's eurozone membership apparently hanging on the result of the June 17 elections – it might seem a little premature of EU leaders to turn their attention to the "longer term perspective". After all, it was only yesterday that former Greek prime minister Lucas Papademos, in an interview with Dow Jones Newswires, warned of the "catastrophic" and "long-lasting" consequences that leaving the single currency would bring. But until the Greeks reach a decisive verdict at the ballot box, events there are, to a great extent, beyond the control of Van Rompuy and his dinner party guests – a fact that sits oddly with the oft-repeated view that in its response to the crisis the EU has ridden roughshod over democracy.

In any case, the thorny subject of Greece will be raised at the end of the meeting. In the meantime, why not engage in a lively conversation about potential "fundamental changes" to the architecture of the eurozone and the EU, as Van Rompuy put it? Of course, in reality few of the proposed ideas for stimulating growth and preventing a repeat of the crisis are new. The line about "no taboos" appears to be an attempt to persuade certain leaders to discuss policies to which they have already stated their strong opposition – say, German chancellor Angela Merkel on eurobonds and British prime minister David Cameron on a financial transaction tax. Eurobonds in particular have dominated the pre-summit debate, with new French president Francois Hollande's support for joint euro area borrowing standing in stark contrast to Merkel's insistence that such a step should be taken only once eurozone economies are much more closely integrated.

Merkel, concerned that lower borrowing costs for indebted countries would remove any incentive to bring their public finances under control, does have allies round the table, including the Netherlands, Finland and Austria. However, Hollande's support is widespread and growing. Yesterday the Organisation for Economic Cooperation and Development not only echoed the French president's call for a growth compact to sit alongside the German-inspired fiscal stability treaty, but suggested the creation of "jointly guaranteed government bonds to help recapitalise banks and enhance credit availability", which would "pave the way to a broader issuance of eurobonds". Cameron said in a speech last week that eurobonds were an example of the "collective support and collective responsibility" that is inherent in a properly functioning monetary union. The Italian prime minister, Mario Monti, backs the idea. International Monetary Fund managing director Christine Lagarde has called for more "fiscal-liability sharing". And addressing MEPs yesterday, European Commission vice-president Olli Rehn urged that a proposal for eurobonds put forward by the EU executive last November is "followed up soon".

Last night Rehn, responsible for economic and monetary affairs, welcomed an agreement between member states and the European Parliament to push ahead with a pilot programme for bonds that will run until 2013. But these are project bonds, not eurobonds. They will fund large-scale transport, energy and communications projects through a combination public and private money. "Project bonds could unlock up to €4.6bn of investment in infrastructure and innovation, based on the leveraging effect of €230m from the EU budget," Rehn said. Notably, Germany was quick to point out that project bonds and eurobonds "have nothing to do with each other", according to one official quoted by the Wall Street Journal. It seems certain that, despite her increasing isolation on the issue, not even the most "open and frank" of discussions can change Merkel's mind on this one.

In his letter, Van Rompuy wrote: "In many ways, the perspective of moving towards a more integrated system would increase confidence in the euro and the European economy generally." But it is hard to see how a discussion of this sort can create confidence when it serves only to entrench long-held positions ahead of June's formal council summit, and when the very future of one country's eurozone membership remains in jeopardy.