German Chancellor Angela Merkel rebuffed pressure on Thursday, June 14, for her country, Europe's most powerful economy, to underwrite debt or guarantee bank deposits in the euro zone as Spain's soaring borrowing costs raised new alarm, Reuters reported.
Spain's 10-year bond yield hit a euro lifetime high of 7 percent – a staging post above which Greece, Ireland and Portugal were driven to seek international rescues – despite last weekend's euro zone agreement to lend Madrid up to 100 billion euros ($125 billion) to recapitalize ailing banks.
Moody's Investor Service slashed Spain's sovereign credit rating by three notches to Baa3, just one level above junk, late on Wednesday, adding to the sense of emergency in financial markets ahead of an election in debt-plagued Greece on Sunday.
Merkel, addressing parliament in Berlin, rejected "miracle solutions" such as issuing joint euro bonds or creating a Europe-wide deposit guarantee scheme, backed by other leaders such as new French President Francois Hollande and Italian Prime Minister Mario Monti.
Such proposals were "counterproductive" and would violate the German constitution, she said.
Instead, she called for gradual steps towards the "Herculean task" of building a European political union.
"It is our task today to make up for what was not done (when the euro was created in 1999) and to end the vicious circle of ever new debt, of not sticking to the rules," Merkel said.
She warned against overstraining the resources of Europe's biggest economy, saying: "Germany is putting this strength and this power to use for the wellbeing of people, not just in Germany but also to help European unity and the global economy. But we also know, Germany's strength is not infinite."
Merkel acknowledged that the euro zone crisis, and Germany's role, would be at the centre of attention at next week's summit of the G20 major world economies in Los Cabos, Mexico.
