GERMANY IS LEADING discussions between six ‘elite’ members of the Eurozone on the potential creation of an elite ‘eurobond’ system – which would begin the process of effectively creating a two-tier monetary union.

The Welt am Sonntag newspaper yesterday reported that the six euro members whose bonds still hold a AAA rating are in talks to issue joint bonds, which would probably allow them to borrow more cheaply as a unit than on an individual basis.

The report also suggested that the elite countries – which include Germany, France, Finland, Austria, the Netherlands and Luxembourg – could also use the bonds as a way of helping to raise funds for Italy and Spain, whose market rates are now reaching unsustainable levels.

Germany has thus far resisted proposals – including those of European Commission president Jose Manuel Barroso – for any kind of common borrowing arrangement with other countries, arguing that ‘eurobonds’ would only reward poor states while punishing stronger ones.

While chancellor Angela Merkel has softened her stance in recent weeks, she has insisted that such bonds cannot be introduced until weaker periphery economies continue with their austerity efforts.

Those arguments would be consistent with the concept of a pooled bond between triple-A rated countries, however, which would not put stronger countries at risk of having to repay debts for weaker ones.

The Welt’s article carried a denial from the German government, however, saying there were no plans for such ‘elite bonds’. Instead, it said, the government was working on plans for a ‘stability pact’ ahead of the summit of EU leaders in ten days’ time.

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