EU chief Barroso unveils controversial eurobonds plan

Jose Manuel Barroso says "we are calling for still closer co-operation in the euro area"

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European Commission (EC) president Jose Manuel Barroso has unveiled plans for eurobonds, in the face of German opposition.

The EC is launching a consultation to assess if the 17 eurozone countries can issue the bonds to raise cash.

It comes as major eurozone countries such as Italy and Spain have seen their fund-raising costs soar.

Meanwhile, on Wednesday Germany placed just 3.6bn euros (£3bn) worth of 10-year bonds, from 6bn euros on offer.

Analysts worried that the eurozone debt crisis was beginning to slip into the German economy, usually seen as a powerhouse, as the euro dropped sharply on the foreign exchange markets after the auction.

"There's been a lot of talk lately that perhaps Germany isn't the safe-haven that many people thought it was," said UBS currency strategist Chris Walker.

Danske Bank chief analyst Jens Peter Sorensen said the auction "reflects the deep mistrust to the euro project rather than a mistrust to German government bonds."

Mr Barroso's 'stability bonds' plan would see much more investigation and control of the budgets of countries within the eurozone, to avoid a repeat of the bailouts and crises affecting the region.

He said: "Stability bonds will not solve our immediate problems and cannot replace the reforms that are needed in countries currently under pressure.

"But it is also important to show to public opinion and to international investors that we are serious about stronger governance in the euro area, both in discipline and in convergence, and stability bonds are exactly an example of that."

German Chancellor Angela Merkel has said that EU treaty changes rather than eurobonds will help solve the eurozone debt crisis.

'Financial discipline'

Wolfgang Schaeuble, German Finance Minister, has said that eurobonds would not solve the eurozone debt crisis and would reduce the pressure on troubled states to tackle their debt.

"This is about creating rules for financial discipline in European countries. As soon as you start talking about eurobonds... you take away the pressure on these countries," he said.

It comes amid reports that Belgium cannot pay its agreed share of the planned rescue of the Belgian-French bank Dexia, seen as placing more risk at the door of the French treasury and adding another threat to the country's AAA credit rating.

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