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Germany's line on key EU battlegrounds

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(BERLIN) - German Chancellor Angela Merkel is under huge international pressure to bow on key EU issues ahead of a make-or-break summit on June 28-29, the latest attempt to resolve the euro debt crisis.

Following is a list of Germany's public position on the key issues.

-- EUROBONDS: France, Spain, Italy and the European Commission are in favour of so-called eurobonds, which would see eurozone countries borrow jointly and is seen as a way of driving down the high borrowing costs of struggling nations.

Germany has reiterated frequently that eurobonds are not the solution to the current crisis and could only be considered "after several years" of steps towards greater integration.

"We are talking about several years and certainly not a solution that we are thinking about in the current problematic situation," Merkel's spokesman has said.

Germany is concerned that eurobonds would not only push up its own low borrowing costs but also reduce the incentive for other countries to slash their own deficits and debts.

-- BANKING UNION: The European Commission Wednesday laid out the first steps towards an EU banking union that would create greater Europe-wide oversight, as well as common deposit guarantee and bank bailout, and resolution schemes.

Advocates of a banking union argue that it will help sever the links between bank and sovereign funding and avoid a repeat of Ireland's case where saving the bank ultimately led the country into needing a bailout.

Germany has said it is against the idea of a common deposit scheme -- guaranteeing the savings of people in other countries -- before other "important steps towards integration" have been taken.

However, Merkel has indicated she is open to the idea of stricter EU-wide banking oversight.

Speaking before meeting European Commission Jose Manuel Barroso on Monday, Merkel said that in the medium-term, Europe must clarify "to what extent we have to place systemically relevant banks under specific European supervision."

-- BAILOUT FUNDS: With Spain's banks in need of fresh capital, there have been calls to allow lenders to tap the EU's bailout funds directly, enabling the government in Madrid to avoid the stigma of going cap-in-hand to Brussels.

Germany, however, has insisted that the rules of the bailout funds (EFSF and its successor ESM) be respected.

First the bank's shareholders must come to its aid. If they cannot, the government concerned must inject fresh funds. If the government itself is not able to help, then the government can apply to the European bailout funds.

"These instruments must be applied for by governments ... whether a government wishes to apply is purely a matter for the government," said Merkel's spokesman this week.

-- GROWTH PLANS: For some time the debate in Europe has been framed as pitting France's calls for more growth in the eurozone against an austerity-obsessed Germany.

In fact, since the turn of the year, Merkel and the EU have sought to shift the focus from savings to boosting output. Merkel often describes growth and austerity as "two sides of the same coin" to solve the crisis.

Earlier this week, Germany drew up its own proposals for growth for the summit, which were widely leaked in the media.

The eight-page document calls for market reforms that would spur growth, as well as better use of current instruments, such as boosting the resources of the European Investment Bank and "project bonds" for infrastructure schemes.

-- POLITICAL UNION: Merkel has insisted that in addition to putting out the immediate fires ravaging Greece, Spain and Italy, Europe needs radical changes in the medium and long-term to prevent such a crisis from happening again.

Merkel's answer, in short, is "more Europe" even if this results in a two-speed union where some countries choose not to immediately join.

She told Germany's public television channel ARD: "We need a political union first and foremost, that means we must, step by step, cede responsibilities to Europe."

This requires ceding more powers to Brussels, including over fiscal policy. Merkel has already pushed through a "fiscal pact", signed by 25 of 27 countries, designed to tighten budgetary rules.


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