Duitsland kan begrotingspact ratificeren (en)

BRUSSELS - Chancellor Angela Merkel i has gained the support of German federal states for ratifying the fiscal treaty and the eurozone's permanent bail-out fund in return for joint debt issuance at national level.

The German federal government on Sunday (24 June) agreed to issue joint debt papers with the 'Laender' from 2013 onwards, to help the more indebted ones meet fiscal targets enshrined in the new EU rules, a press statement from Merkel's office says.

The compromise reached in Berlin is based on a principle that Merkel is resisting at European level: joint debt issuance in the eurozone to lower the borrowing costs for countries like Italy and Spain.

Until now, when challenged on its opposition to eurobonds, Berlin officials had pointed out that Germany itself did not have a national system of debt mutualistion.

At the EU level, Merkel has argued that stricter controls and the perspective of a political union further down the road are needed for her to agree to mutualising eurozone debt.

The issue will come up again on Thursday, when EU leaders meet in Brussels to discuss a 10-page long report drafted by the heads of the European Council, Commission, the Central Bank and the Eurogroup - comprising of eurozone finance ministers.

The possibility of a debt redemption fund, eurobonds or eurobills - more or less ambitious ways of pooling debt in the euro area - are to be floated in the paper, but only at a later stage and along with a treaty change enshrining more competences at EU level.

A similar idea for the banks - having a joint fund - and more supervision by the European Central Bank are also included in the mix.

Meanwhile, despite the agreement with the opposition and the federal states - both required to ratify the treaty on fiscal discipline and the permanent eurozone bail-out fund (ESM) - Germany will still be among the last countries to adopt the two due to pending constitutional challenges.

Speaking to Der Spiegel magazine on Sunday, German finance minister Wolfgang Schauble admitted that the limits of the German constitution are being tested and that more transfers of sovereignty to Brussels will require a referendum in his country.

"I reckon it could come earlier than I would have thought a few months ago," Schauble said when asked when the referendum may take place.

He noted that in the past he had thought it could not happen earlier than five years from now. "Now I am not so sure," he said.