Eurobonds Post author By Philip Lane Post date August 9, 2011 Owen Callan of Danske Bank has an op-ed on this topic in the Irish Times: you can read it here. Categories In Uncategorized 11 Comments on Eurobonds ← The Consolations of Philosophy: Reflections in an Economic Downturn → The Debt Crisis 11 replies on “Eurobonds” Why does not the ECB just give electronic cash on a per capita basis to all countries in the eurozone – therefore no favouritism & no silly poltical games. There is simply too much debt – eurobonds or any bonds is not the answer. Maybe its a fear of exposure – the emperors new clothes are quite drafty you know. Eurobonds = fiscal union, transfer union and federalisation by the back door. This and what has already gone before it, the bailout of Greece, Ireland and Portugal must get past the German courts Merkel is cognisant that she muct face the electorate and that this will spell the end of her career. I don’t believe the German courts or people will buy this. ‘At the very least a much higher level of fiscal co-ordination can be expected, and the concept of eurobonds, or a central euro-treasury, makes sense from a number of perspectives. Already, through the aid facilities in place for Greece, Ireland and Portugal, and now through the ECBs purchasing of Italian and Spanish sovereign debt, we have in place within the euro zone a risk-sharing mechanism, and a quasi-transfer union. Eurobonds are perhaps the next logical step to codify this development.’ Can’t see Euro or European Project surviving without the ‘strength’ of EuroBonds – then ‘weaknesses’ can be handled, somehow, internally. There are many questions to be answered about how a federal government or finance ministry in the EU would work. I suppose a bit like the U.S. model. Apart from that what will happen with Italian/Irish/Portuguese/Spanish debt. Will it be all converted at 100% of face value and interest rates when changed to a eurobond? This would be a massive win for ‘the markets’. Otherwise how much of a haircut would Irish state bondholders be expected to take to swap it for a new more secure Eurobond? Also what will be the policy on bank bailouts? Are they going to start a FDIC and let banks fail like the states or continue this policy of bailout out everyone? Also what will be the policy on bank bailouts? Are they going to start a FDIC and let banks fail like the states or continue this policy of bailout out everyone? Callan’s article should be read alongside this FT oped by Otmar Issing against Eurobonds http://t.co/yClD76u I’ve heard the phrase that Germany is one of the largest beneficies of the euro area many times now, and I think it’s a load of cobblers. Germany’s export sector benefits from being so grossly undervalued but the average German citizen has his spending power greatly reduced by artificially expensive imports. Exports are not the only source of growth, and the German economy would have far more reliable growth prospect were it to revalue. Relying on export growth alone has not given Germany all that impressive growth rates over the last decade, and its potential growth rate is calculated at between 1-1.3%, a truly meager figure for such an advanced economy. Aside from German exporters, and a political elite who like to make grand gestures, I’m not sure that the euro has really benefitted the average German at all, in fact I would argue that it has done the opposite What would happen to individual sovereign ratings? If they remain, how long until an eventual German/French downgrade, which would lead to increased yields etc.. There is alot to discuss but there is certainly an underriding fear that we may destroy the prospect of Germany bailing anybody out at reasonable rates if the idea fails (and is there any going back??) Getting Eurobonds ratified will not be easy…they have not even fully agreed on the EFSF funds…”Finnish Prime Minister Jyrki Katainen told Reuters he expected parliamentary backing but also stressed that Sunday’s Franco-German statement could not and did not commit the EFSF to buying the bonds of weaker member states. “No two countries can decide on behalf of others, and they haven’t decided between themselves on buying some country’s bonds either,» Katainen said in an interview on Monday.” unanimity ? EZ does not need an EFSF. It needs an ETMA to handle the EuroBond market; a reconstituted ECB, a functioning Commission, and a Big Bolshy Bugger from the Wesht of Ireland to handle Defence and able to sit comfortably with the Pentagon and Beijing. Comments are closed.