Support is rising for the creation of common euro zone bonds to enable troubled member states such as Greece to borrow more cheaply, Greek Prime Minister George Papandreou said on Thursday, according to Reuters. Addressing a French Economy Ministry conference on reviving the global economy, Papandreou said jointly issued euro bonds could help overcome the single currency area's sovereign debt crisis. Germany and France, the two biggest economies in the 17-nation euro zone, have so far firmly opposed the idea. "There is growing support for the issuance of euro bonds as a financial instrument that can help Europe achieve its objectives," Papandreou said in a speech, referring to proposals by Eurogroup chairman Jean-Claude Juncker and Italian Economy Minister Giulio Tremonti. "Euro bonds will help reduce growing tensions in the sovereign markets," he said, adding: "Euro bonds are not a substitute for this necessary adjustment we are making in countries, including my own." Berlin and Paris argue that issuing euro bonds at a single interest rate would raise their own borrowing costs and remove a key market incentive for fiscal discipline in countries with high debts and deficits. The yield on France's top-rated 10-year bonds rose almost 50 basis points from the last sale when Paris sold almost 9 billion euros in bonds in its first auction of the year on Thursday, highlighting rising borrowing costs in the euro zone. ROOM FOR EU STIMULUS? The focus of Europe's debt crisis has moved on to Spain and Portugal after bailouts last year that rescued Greece and Ireland in the short-term but left them facing years of budget cutbacks and a struggle to reboot economic growth. Highly-indebted Italy and Belgium are also creeping onto the radar and investors are concerned that Greece and some other euro zone weaklings may have to restructure their debts despite the bailouts. Papandreou said there was no room to stimulate the economy at national level, "but room does exist at the level of the European Union. "The European Union has great possibilities if we compare to the United States, which has huge federal debt. there is no such debt at the EU level." Markets would only calm down if they were convinced the EU was capable of returning to sustainable growth, he said. European paymaster Germany opposes borrowing at an EU level and says countries must work their way back to competitiveness by reducing deficits and through structural economic reforms. French Prime Minister Francois Fillon, addressing the same conference, said the crisis was not one of the euro, which remained a strong currency and the second global reserve unit. "Europe sometimes gives the impression of lagging the markets, of reacting with efficiency to immediate threats but without having a long-term plan," Fillon said. Budget discipline was important but the EU also needed "a minimum convergence in fiscal matters, and perhaps even social matters", he said. France has announced its own plans to pursue convergence in taxation policy with Germany. SPANISH BOOST British finance minister George Osborne, whose country has not joined the euro, told the conference: "In the next few months, the euro zone needs to demonstrate ... to the world that the countries of the euro stand behind their currency." Spain received a boost this week when a visiting Chinese vice premier said Beijing was prepared to buy Spanish government bonds, as it has pledged to do with Greek and Portuguese debt. El Pais daily reported on Thursday that Vice Premier Li Keqiang had indicated to Spanish leaders that his country was willing to buy about 6 billion euros of Spain's public debt. Spain plans to issue 47.2 billion euros in net medium and long-term debt in 2011. The Spanish and Chinese governments declined comment on the figure, but vice commerce minister Gao Hucheng reaffirmed in a statement that Beijing supported financial stabilisation measures being taken by Spain and other EU nations. "Since the outbreak of the European sovereign debt crisis, China has been increasing (its holdings of) government debt issued by EU nations, including Spain, to help them fight the crisis with concrete actions," Gao said. The French business daily La Tribune estimated on Wednesday that China held 7.3 percent of the total 8.861 trillion euros in outstanding euro zone public debt last June, based on extrapolations from Chinese currency reserve figures.
