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Eurobonds could stop the downward spiral

The Local · 16 Aug 2011, 14:49

Published: 16 Aug 2011 14:49 GMT+02:00

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It was surprising news. The Welt am Sonntag newspaper reported this Sunday that the German government was ready to accept the introduction of jointly issued eurozone bonds to save the currency union.

"Preserving the eurozone with all its members is the absolute priority for us," the paper quoted government sources as saying.

Was this a dramatic U-turn in Berlin's policy on Europe’s current crisis? Chancellor Angela Merkel immediately despatched her spokesman Steffen Seibert to deny the report, but the truth is it's high time that Germany give up its resistance to eurobonds – which ease borrowing for heavily indebted countries like Greece while raising costs for more fiscally sound eurozone members.

Why? Because Germany simply cannot go on perpetually bailing out Europe’s ailing economies. Every time EU leaders implement a measure to ease the crisis in one country, it flares up somewhere else – this is clearly an unsustainable situation.

Eurobonds could stop the downward spiral. They would ensure that countries were no longer responsible solely for their own financial liabilities. Instead, the entire eurozone as a whole would guarantee the majority of the debt. The result would be a huge cut in interest rates, and – so it is hoped – the creditors would regain their confidence in the euro.

The criticism that eurobonds would finally seal Germany's position as the paymasters of Europe does not bear much scrutiny. It is by no means a given that Germany would have to pay markedly higher interest on its debt after the introduction of common debt instruments.

The eurozone's debt level measured against its economic power is significantly lower than that of the United States, yet US government bonds continue to have extremely low interest rates, despite the recent downgrading by the credit ratings agency Standard & Poor's.

It’s too simplistic just to average the current interest rates of all national bonds and use that as the standard for future eurozone rates.

But those demanding eurobonds, as a few of the euro's crisis states are, need to be clear about the consequences: relinquishing complete national sovereignty in financial policy would be crucial.

Brussels would have to make sure that member states keep their finances under control, and would have to wield all the power necessary to ensure just that. Indeed, at the weekend German Finance Minister Wolfgang Schäuble made this a condition of any introduction of common government bonds.

It would also be worth considering forcing every eurozone member to enshrine a debt limit in its constitution – as is the case in Germany.

Story continues below…

If this happened, Germany, as the currency area’s strongest economy, would have the opportunity to decisively influence the economic architecture of Europe. At the end of the day, the Europeanization of financial policy would have more effect on the economically weaker countries in southern Europe than it would on Germany.

Those nations would be forced to accept sustainable fiscal policies on a permanent basis. And eurobonds would in no way render economic reforms and budget cuts in Greece, Portugal, Italy and France superfluous – quite the contrary, issuing joint bonds would only reinforce the need for them.

This editorial was published with the kind permission of ZEIT ONLINE, where it originally appeared in German. Translation by The Local.

The Local (news@thelocal.de)

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Your comments about this article

15:43 August 16, 2011 by Ray Finch

This is how it plays out.

Eurobonds issued, several of the debtor economies immediately restart spending "to kickstart their economies".

Debts become unpayable. EU makes a powergrab on debtors sovereignty then either:

a) Government fefuses to allow "foreign hostile takeover" of their nations economies.


b) Govt. allows it, locals refuse to accept EU economic hegemony and accompanying drastic cuts to living standards. Riots and General strikes ensue. Eurobonds become devalued.

Can none of these pro-Euro lunatics even vaguely comprehend the outcome?
04:42 August 19, 2011 by r2d2c3po
Very well said. Why is it politician's brains turn to dung?
22:07 August 19, 2011 by johnny108
Chancellor Merkel should only give up her stubborn resistance to Eurobonds, when other Euro countries give up their stubborn resistance to fiscal responsability.
07:48 August 20, 2011 by Dr. V
Hey, don't make it out like Germany is not guilty here. Germany is the one who pushed for the EU so hard. Now they don't want to bow down to a higher organization. They think they can bend the rules along with France (their partner in stupidity). If Germany wants out of the EU, go...get out, it would be better off without them anyway. Whatever happened to the original idea that the EU and more specifically, the Euro currency, was intended as a leveler. It was supposed to knock Germany off their pedestal, and even the playing field for the smaller countries to be equally represented. Instead, Germany has abused their position, they lie 24/7 about their debt (and financing of it), banks are broke, and still they act defiantly in the face of the EU, thereby the world. Force them, if it takes UN troops in the streets, so be it. Wouldn't be the first time they need to be reminded that delusional thoughts of controling Europe will not be tolerated by the rest of the world. And why is Germany following the Socialist ideology anyway? You are aware their ¦quot;action programme¦quot; ( Communist Manifesto) was written by 2 drunken Jewish refugees in a London Pub? How German is that?
21:03 August 20, 2011 by PierceArrow
Gutes Leiden! (Good grief!) Somebody need to tell the writer of this article that you DON'T get out of debt with more borrowing. Countries such as Greece need to cut spending and live within their means, even if they have to temporarily suspend every government program except law enforcement and the military!
22:10 August 21, 2011 by MichMash115
Holy moley Dr V - Germany following a socialist ideology? Have you taken a look at the German government lately??? Delusional thoughts of controlling Europe? People need to stop pulling the Nazi card everytime they have something critical to say about Germany and/or Germans. It is insulting and stupid.

Either the EU is a financial and political entity or not. It must be a "for better or for worse" relationship, or there is no point - all for one and all that. Having said that, I´m not entirely sure that Eurobonds are the answer...

@ PierceArrow, why would you suspend all government programmes except law enforcement and the military? What about education - the thing that is essential to economic growth in the 21st century? What about health care. Screw the miliatry. Take care of people.
07:21 August 22, 2011 by ugly_american
First: I am flabbergasted that France and Germany can not only cooperate, but actually _agree_ on something! Is this the coming of the Apocalypse? I guess that European integration really has brought about a "peace in Europe" of sorts.

Okay, back onto the mess at hand:

I think Merkel/Sarkozy (they're like one person now) should OK eurobonds, but with a lot of caution. What sort of gets me about M/S line is the whole "we all gotta stick to Maastricht". Hey, neither one of your governments held to Maastricht. Granted, it's not entirely M/S's fault as they weren't in power when all these fiscal decisions were made. Also, Germany is wealthy enough to exceed Maastricht and still remain competitive and relatively debt-free. Still, if the ECB is going to issue eurobonds, everyone, including Germany, has to play along, even if borrowing costs go up.


A EU fiscal ministry must make sure that all EU countries push through debt brake amendments. It's not fair to force debt brakes on poorer countries and then let Germany, the Netherlands, and Finland do what they please. Even the fiscally responsible countries can't live above the law.

Debtor countries should only be allowed 60% of their national GDP in eurobond issues. Budget wisely. An EU fiscal board could step in if a country tries to max out their eurobond issues quickly.

Every country must submit an annual financial review to the EU fiscal board. This is especially crucial for the heavily indebted countries. The debtor countries must show better budgeting or austerity management if they wish to avoid handing even more power off to the EU fiscal board.
11:49 August 22, 2011 by johnny108
Face the facts, people- until every Euro country is willing to accept oversight and control from it's neighbors, then the Eurobond is nothing more than an attempt by poor countries to pass the bill to a richer country!!

Germany was the fastest country to recover from the recession- why is no one listening to their economic advice!?!
16:10 August 22, 2011 by steve6400
Eurobonds = urinating in your pants to keep warm.
06:43 August 23, 2011 by Unbias
To be fair I am an american to get it out there first. I don't know about a euro bond, but Germany and the Chancellar should do more to ease market sentiment like increase the reserves which she and the french president said was sufficient, this would at least show that Germany and France are willing to help. We talk the talk and,although as of late are not as powerful as we once were, have walked the walk. Argentina and chile needed help from the IMF years ago it was given US still accounts for 22% of monitary contributions and much greater then. Furthermore in 2008 when the US began to fall first it was Europe who scoren us for bad practice, yet come to find out when the report was finally published, the US not only lent money to Us banks but a very large % went to european banks. Conclusions,

America has not been perfect but when the world screams for handouts america is the first place heads turn. Its time for some help from those like the US who continue to be Strong. Romans 15:1 WE WHO are strong [in our convictions and of robust faith] ought to bear with the failings and the frailties and the tender scruples of the weak; [we ought to help carry the doubts and qualms of others] and not to please ourselves.
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