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.
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.