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AJ begins: What are clear are these: 1. Europeans want to preserve the EU; 2. And the Euro, if possible. 3. Germany wants the profligate spending of some European countries to stop, while the countries involved want to continue to live on borrowed money. Canada is a mixed bag as a model. After its two Conservative parties united, the real Conservative ideas of Western Canada have been watered down. Enough of it survived to bring Canada back from the brink. That is what appeals to Chancellor Merkel.

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German Chancellor Angela Merkel renewed her call for austerity as crucial to tackling financial turmoil in the euro area, praising Canada’s economic example as she returned to the crisis fight after her summer vacation.



Merkel, facing European pressure to ease bailout terms and allow shared debt, and from global partners to do more to stop contagion, used a visit to Canada as the stage for her first public comments in a month on the crisis. She hailed Canada’s budget discipline, promotion of economic growth and “not living on borrowed money” as models for the 17-nation euro region.



“This is also the right solution for Europe,” Merkel said at a reception in Ottawa late yesterday before talks with Prime Minister Stephen Harper, according to a transcript posted on the German government’s website. “I will report on our political will to overcome the euro crisis and on our determination in Europe to band together for a common currency.”



Merkel returns to the global stage as the crisis enters a new phase. Germany’s supreme court will rule on the legality of Europe’s permanent rescue fund next month, when Greece’s international creditors are due to report on progress in meeting bailout targets. Italy and Spain meanwhile have yet to decide if they’ll request help from the European Central Bank to lower borrowing costs.



‘Becoming Clear’

“It is becoming clear that the ECB purchases have to be conditional on the implementation of austerity and structural reform measures in that country,” Citigroup Global Markets analysts led by Juergen Michels said in a note to clients today.



Greece, on its second rescue program after triggering the crisis in late 2009, may run out of road at the end of the year. Greek Prime Minister Antonis Samaras’s government probably can’t come up with enough austerity measures even if creditors extend the time line as his coalition wants, according to Citigroup. That means an end to international funding “looks very likely” after the next audit set for December, it said.



Merkel is due to host French President Francois Hollande on Aug. 23, Paris-based Agence France-Presse reported today, one day before Samaras travels to Berlin for talks. Italian media have reported that Prime Minister Mario Monti is due in the German capital on Aug. 29. Spanish Prime Minister Mariano Rajoy has said that Merkel will visit Madrid on Sept. 6.



Threshold Passed

Italian 10-year bond yields advanced 7 basis points to 5.81 percent as of 1:55 p.m. in Berlin, while equivalent Spanish debt fell 7 basis points to 6.51 percent. Spanish 10-year bond yields reached a euro-era high of 7.62 percent on July 24, past the threshold that prompted Greece, Portugal and Ireland to seek bailouts. German 10-year bonds yielded 1.52 percent today.



Merkel, as leader of Europe’s largest economy and the biggest single contributor to euro-region bailouts, is facing calls from Italy and Spain to pool debt to bring down bond yields, from Greece to back an easing of its austerity timetable and from the ECB for politicians to take the lead in fighting the crisis. President Barack Obama, Canada and major developing countries are also pressing Europe to stamp out the crisis that’s weighing on the global economy.



“They need to do much more,” Canadian Finance Minister Jim Flaherty told reporters yesterday before Merkel arrived. “We have been clear for several years that not only should the European countries take overwhelming concerted action to take control of the situation, but also that the European countries have more than adequate resources to do so.”



Merkel and Harper plan to hold a joint news conference at 5 p.m. Berlin time. Later today, Merkel is due to visit an ocean research center in Halifax on her trip back to Berlin.



To contact the reporter on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net



To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net