End games

Wolfgang Münchau outlines one possible scenario in today’s FT: a crisis-driven leap towards eurobonds, in the most toxic political circumstances possible.

4 thoughts on “End games”

  1. You can see where he is going with this…..Germany and France will not move until it is really seen that it is going to bite them and this will only happen when Italy is brought into the mix. From Ireland’s point of view, IMO, this is a disaster as we are going to be left in limbo on the periphery for a number of years but our elites are only the little people so don’t have much sway in the corridors of power unless we forced unilateral action but how would that play out in the long run!

  2. Euro bonds do not solve the fundamental problem of the Eur ozone as it needs additional money – a period of epic private credit formation can only be solved with Goverment money at negative real rates.
    The bankers are looking for “growth” to get them out of the web of debt but there is no more worlds to conquer.
    The lack of Arab oil will expose the bankers deception.

  3. Excellent article. Politically, Munchau may be even understating how toxic it will be. Finland’s election yesterday illustrates the political risks in relative benign circumstances– Finland is not in real trouble and makes a profit on its loans but the True Finns still came within a hair’s breadth of winning. As countries pay a greater price, what happened yesterday may only be a glimpse of what is yet to come. When Munchau’s moment of truth comes, it will be a choice between a Eurobond with extremely tough conditions attached (to guarantee passage in Germany and France). However, with the changed political environment, it is very likely that the deal may be rejected at a domestic level, both because it is not tough enough from the point of view of the core and too tough from the point of view of the periphery.

  4. @ KO’R,

    There is nothing to prevent a number of EU member states joining together and issuing bonds collectively. In fact, I believe that the financial markets would accept that method, much more quickly, than a huge big meaningless Eurobond paper, which is meaningless from the point of view of any investor. The EU cannot issue bonds like the USA does, because the EU does not have the connectedness, and governance communication structures that the USA enjoys. I can forsee some kind of Eurobond auction in the future, but it will work best at a lower level, than at the one proposed. The finance obtained through the regional bond auctions I had in mind, could be further re-distributed by similar means, by application from the sub-regions, within a collection of EU member states. This is what the European Union needs to begin to do, to start looking for areas where member states can connect together for benefit, and offer that deal to the market in looking for the finance. It needs to be tied by to a defined plan for a region, with specific conditions and monetary lines of repsonsibility. BOH.

    http://www.irisheconomy.ie/index.php/2011/04/15/a-tale-of-two-trilemmas/#comment-140793

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