Contrasting statements 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 because of the US debt impasse. 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 eurozone's rescue fund.
"The decision of our European partners to lend us at 3.5 percent, 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 euro zone bonds remain anathema in Berlin, where fiscal conservatives are warning against the eurozone becoming a "transfer union" in which hard-working German taxpayers' money would be poured into a bottomless pit.
German Finance Minister Wolfgang Schaeuble sought to assuage critics in the ruling coalition, assuring lawmakers that the summit did not give the euro zone rescue fund "carte blanche" to buy bonds of states in difficulty. Schaeuble said one summit would not be enough to solve the eurozone's problems but the agreed measures could prevent Greece's debt woes from becoming "a crisis that would endanger the eurozone as a whole, and therefore the euro".
His comments pointed to obstacles to intervention by the European Financial Stability Facility, which may limit its ability to prevent contagion to bigger economies such as Spain and Italy. The summit agreed to allow the EFSF to give precautionary credit lines to states at risk of being shut out of credit markets, to lend governments money to recapitalise banks and to buy bonds on the secondary market in exceptional circumstances.
In contrast to Schaeuble, Papandreou highlighted the extent to which those moves put the eurozone on the road to joint debt management. "The bond buybacks in the secondary market are something we sought for a long time to be able to intervene against the appetites of markets and speculation," he told legislators. "This will be done through the EFSF, which means that in an embryonic form, a truly common debt management practice is beginning in the euro zone," the Greek leader said.