EU Must Embrace ‘Political Union’: Merkel

German Chancellor Angela Merkel said it’s time to embrace a “political union” in Europe to send a message to bondholders that euro-area leaders are serious about ending the sovereign debt crisis.

Speaking on the eve of her Christian Democratic Union party’s annual congress in the eastern German city of Leipzig, Merkel said that she wants to preserve the euro with all current 17 members. “But that requires a fundamental change in our whole policy,” she said.

“I believe this is important for those who buy government bonds: that we make it clear that we want more Europe step by step, that is that the European Union, and the euro area in particular, grows together,” Merkel said in an interview with ZDF television late yesterday. “Otherwise people won’t believe that we can really get a handle on the problems.”

Merkel will address her party at about 11 a.m. today after weeks of crisis fighting during which she raised the prospect of ejecting Greece from the euro and joined with French President Nicolas Sarkozy to call on Italy to hold to its budget pledges. After leadership changes in Italy and Greece, the chancellor is turning her attention to shaping the euro and EU’s future.
‘Sweeping Through’

“Big political changes are now sweeping through the euro zone, putting — at least for now — the many skeptical political observers to shame,” said Erik Nielsen, chief global economist at UniCredit SpA in London. In Italy, Greece and Spain, which holds elections on Nov. 20, “people want ‘more Europe,’ not less.”

Asian stocks rose the most in a week as Italy and Greece recommitted to the reform path. The MSCI Asia Pacific Index climbed 1.3 percent as of 2:57 p.m. in Tokyo, after losing 2.4 percent last week. The euro rose for a second day and was at $1.3755 as of 7:01 a.m. in London from $1.3750 in New York on Nov. 11. It reached a one-month low of $1.3484 on Nov. 10.

In her interview, Merkel said that the next step to bolster investor confidence means what was begun by the euro’s founders must be completed with “a fiscal union, and then turn it step by step into a political union.”

Euro leaders are due to meet in Brussels on Dec. 9, when they have asked EU President Herman van Rompuy to present them with a report on a “timeframe for the further strengthening of the euro zone” that should include “the question of possible treaty changes,” the German Finance Ministry said Nov. 9.

“Merkel wants far more centralized euro fiscal oversight so that something like Greece can never happen again,” Jan Techau, director of the Brussels-based European center of the Carnegie Endowment for International Peace, said by phone. That means euro governments will have to cede some sovereignty over budgets, he said. “There seems to be some kind of deal between Merkel and Sarkozy on this.”

Michael Meister, the CDU’s parliamentary finance spokesman, raised the prospect of joint euro-area bonds following on. “An integrated fiscal policy” in the euro region would mean “we can discuss the question of joint liability,” he said in an interview on Nov. 10. “The sequence of events is important.”

The euro crisis now entering its third year is the main theme occupying Germany’s ruling party as more than 1,000 delegates gather in Leipzig. The convention’s main motion is on the euro.
Solidarity, Encouragement

Euro members that get financial support must reduce debt and strengthen their economies, according to the draft text of the motion to be debated today. “Some countries will achieve this quickly, while others will need our solidarity and our encouragement for years,” it says.

The chancellor addresses the convention with domestic public opinion going her way. Merkel’s handling of the debt crisis is backed by 56 percent of Germans, up from 45 percent in early October, according to an FG Wahlen poll for ZDF television published Nov. 11. Merkel’s overall approval rating also rose. The Nov. 8-10 poll of 1,278 people has a margin of error of as much as 3 percentage points.

Merkel will use her speech to issue a “warning” that it’s necessary to do everything to move toward a “stability union,” the CDU’s Meister said. “We mustn’t just draft rules, we need to patrol them and enforce them,” he said. “We need more discipline.” Merkel will deliver that message “loud and clear.”