Berlin: German Chancellor Angela Merkel hardened her opposition to joint debt sharing in the euro region as President Barack Obama singled out Europe’s leaders for not doing enough to stop the financial crisis.

With Europe’s debt crisis cited last week for cancelled IPOs, weaker-than-expected Chinese manufacturing figures and a rise in the US jobless rate, Merkel rejected joint debt issuance in the 17-nation euro area as a solution, saying “under no circumstances” would she agree to Germany-backed euro bonds.

Now, some “come along and ask for euro bonds, saying all we need are equal interest rates and everything will turn out all right”, Merkel said in a speech to members of her Christian Democratic Union in Berlin on Saturday. Instead, what’s needed is an economic overhaul to tackle the lack of competitiveness in Europe, she said.

Merkel, the head of Europe’s biggest economy and the largest contributor to bailouts for Greece, Portugal and Ireland, is the pivotal player in efforts to resolve the crisis now in its third year.

As Spain struggles to avoid becoming the next country to call for a rescue and the euro slides near a three-year low against the dollar, Obama added to pressure from the European Central Bank, France and Italy to do more to halt the spread of contagion.

European ‘cloud’

Obama, speaking at a Chicago fundraiser on Friday as he bids for re-election in November, said that a report showing the slowest month of US employment growth in a year was in large part “attributable to Europe and the cloud that’s coming over from the Atlantic”. The “whole world economy has been weakened by it”, he said.

“Europe is having a significant crisis in part because they haven’t taken as many of the decisive steps as were needed to deal with the challenge,” he said at a separate event in Minneapolis.

The president’s point person for the European crisis, Lael Brainard, Treasury undersecretary for international affairs, ended a three-day tour of Europe’s crisis capitals on Friday as work continued on erecting a financial firewall to stem contagion.

The European Union is targeting July 9 as the start date for its permanent rescue fund, the €500 billion (Dh2.3 trillion) European Stability Mechanism, an EU official said.

Spanish storm

Brainard held closed-door meetings with government officials in Athens, Madrid, Paris, Frankfurt and Berlin in a week when investors flocked to the perceived safety of German and US bonds.

The euro fell to almost a three-year low against the dollar and an 11-year low against the yen as uncertainty over the outcome of Greek elections on June 17 shifted to take in Spain, where Prime Minister Mariano Rajoy’s government is struggling to shore up banks amid a recession.

“The storm hasn’t disappeared but we aren’t going to sink,” Rajoy said in a speech on Saturday in Sitges, near Barcelona. “We are not on the edge of a precipice.”

Rajoy called on analysts and investors to moderate “irrational” views of Spain’s financial situation, saying that Spain “will emerge from the storm under its own efforts and with the support of our European partners”.

Spanish 10-year yields ended the week at 6.51 per cent, approaching the 7 per cent level that triggered previous euro-area bailouts, though below a euro-era record of 6.78 per cent on November 17. Germany’s equivalent 10-year bund rate was at 1.17 per cent after reaching 1.127 per cent, the lowest since Bloomberg began collecting the data in 1989. German two-year yields slid below zero for the first time.

Germany and Spain are in close contact over those efforts “as we must tackle the problems of the past and start the future with a clean slate”.

The German chancellor, who was besieged over her crisis-fighting policy last week by Italian Prime Minister Mario Monti and ECB President Mario Draghi, took aim at Italy as she cited a “missed opportunity” offered by the euro’s introduction for Europe to overhaul uncompetitive economies. The cheaper borrowing that came with the euro meant “countries like Italy became virtually on a par with Germany in terms of interest rates”, she said.

Now “what we have is a situation that we didn’t want,” Merkel said. “The freedom created by this situation wasn’t exploited to improve long-term competitiveness. Instead, the time was used to spend too much money in consumption and too little time in tackling reforms.”

The domestic pressure facing Merkel on her crisis response was underscored by an editorial in Germany’s best-selling Bild newspaper on Saturday, saying that Greece is reaching the end-game as soon as next week, regardless of the election outcome.

Greece “is unravelling”, and ever-more aid cannot deliver the new beginning that Greece needs, said Nikolaus Blome, Bild’s chief political columnist. The Greek state “must be rebuilt, like in a developing nation”, he said. “Someone among the Eurozone leaders must finally tell the Greeks the truth: this fresh start can only be achieved with a radical first step. And that means leaving the euro.”