EU's Barroso defends eurozone bonds plans

(BRUSSELS) - The head of the European Commission defended on Monday the idea of joint eurozone bonds in the face of German opposition, saying they will make sense once the bloc achieves greater fiscal discipline.

"We believe that when there are appropriate levels of integration, convergence and discipline, it makes sense to have some kind of stability bonds in Europe," said Jose Manuel Barroso, president of the EU's executive arm.

"The commission has not only the right but the duty to present options," he said.

Barroso said the sort of "stability bonds" he is to propose formally on Wednesday are needed "because the governments of Europe did not respect their commitments."

He blamed not only Greece for borrowing beyond its means, but also "some governments that usually want to present themselves as holders of virtue that did not respect the discipline."

The commission will present three options on Wednesday.

One option would replace national bonds with a unified debt issue, with all 17 eurozone nations guaranteeing each other's re-payments.

Another idea would be to pool just a portion of borrowings, again guaranteed by all.

The third option could impose strict entry conditions for a smaller group of countries to pool some debt and allow for the removal of budget sinners. Unlike the first two, this would involve "several but not joint" government guarantees, and therefore not tricky treaty change.

"In order to implement the vision of Stability Bonds as 'stability bonds' one might also set fiscal conditions for member states in order to enter and remain in the system," the legislative green paper says.

In order to get round concerns about "moral hazard," meaning that one state might more readily run up debt knowing another can step in to dig it out of a hole, the Commission proposes "a mechanism to redistribute some of the funding advantages... between the higher- and lower-rated" governments.