Bundesbank rejects shared-euro-zone-liability plan

Germany's conservative central bank said Monday it opposes a proposed bond redemption fund, first put forward by the country's Council of Economic Advisers, that would allow euro-zone states to share liability for debts above 60% of GDP
Whether the idea could be implemented under existing European treaties and be compatible with German constitutional law "appears very questionable," the bank said in its June bulletin
The bank said that the euro zone's bailout funds, the EFSF and the ESM, are better tools for addressing fiscally weak states in the 17-nation currency bloc as these are linked with strict conditions and penalty interest rates on loans
It also cautioned a mutualization of debts would lower the pressure on states with higher financing costs to engage in sound fiscal policies and could ultimately damage Germany's credit rating
Comprehensive shared liability would "throw liability and monitoring considerably out of balance," wrote the bank, adding that reform proposals failed to beef up European authorities' right to intervene in the budgetary policies of individual member states
Leading policy makers in Germany have taken a skeptical stance toward any sharing of debt in the euro zone that is not accompanied by strict and enforceable rules regulating the fiscal deficits the region's countries can run
German news magazine Der Spiegel reported over the weekend that the European Union and the European Central Bank are working on joint euro-government bonds "light," or euro bills, with short maturities and limited volume that each country could use up to a limited amount to finance itself, citing people familiar with the matter in Brussels
Dow Jones Newswires