Are euro bonds the answer?
French President Francois Hollande is for euro bonds, but his German counterpart, Angela Merkel, isn't so enthused.
May 22nd, 2012
02:12 PM ET

Are euro bonds the answer?

Editor's Note: The following text is from GlobalPost, which provides views — importantmoving or just odd — from around the world.

By Paul Ames, GlobalPost

French President Francois Hollande thinks he’s found a solution to the eurozone crisis: the name’s Bonds. Euro bonds.

Unfortunately, Angela Merkel’s still playing Dr. No.

At a eurozone summit Wednesday, the new French leader plans to revive proposals for bonds that would be jointly issued by eurozone countries, spreading national debt burdens across the whole currency bloc.

Hollande knows, however, that there is little chance the German chancellor will warm to the idea, even faced with the mounting concern that, without drastic action, the eurozone is headed toward a disastrous breakup.

“We spoke about it, and both sides confirmed their well-known positions,” said France’s Finance Minister Pierre Moscovici after meeting with his German counterpart Monday to prepare the summit.

“Francois Hollande plans to put everything on the table … even those proposals that cannot be agreed immediately,” Moscovici added.

As the eurozone’s strongest economy, Germany knows that euro bonds will mean its taxpayers end up taking on debts incurred by Greece, Spain, Italy and other troubled economies.

That would ease the immediate pain in the southern Europe and the risk of the euro’s early demise. But critics argue that euro bonds would reward financial sloppiness and relax pressure on the southerners to purse the painful reforms and fiscal discipline needed to get their economies back in shape.

And if the euro bonds didn’t work, paying out for the south could undermine Germany’s financial stability.

“That’s a prescription that comes at the wrong time and carries the wrong side effects,” Germany’s Deputy Finance Minister Steffen Kampeter told Deutschlandfunk radio over the weekend.

Kampeter contended that common financing was unlikely to be in place for a decade or more, and certainly would not be decided when Hollande holds his first meeting with other eurozone leaders at Wednesday dinnertime summit in Brussels.

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Hollande is expected to get support for euro bonds from the leaders of Spain, Italy and many smaller members of the 17-nation currency bloc, as well as the European Union’s head office, which put forward a plan for jointly issued debt last year.

“It would make economic sense to create a deep, liquid and stable market for government bonds with the joint issuance of common debt — euro bonds — at least, once we have reinforced our economic governance further to ensure fiscal prudence,” EU Economics Commissioner Olli Rehn said at a speech in Oxford last week.

Even were the Germans to agree, the legal complexities involved in introducing jointly-issued debt would mean that euro bonds are years away. However, supporters say an agreement to work on their creation could help calm jittery markets and convince voters in Greece and Ireland to support European debt-fighting plans when they go to the polls in the coming weeks.

A “no” vote in Ireland’s May 31 referendum on the new EU fiscal discipline treaty could leave the country cut off from further European rescue funding. But polls show a significant number of voters, disgruntled with the austerity that came as a condition for a 67 billion euro bailout in 2010, are considering rejection.

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Greece is holding a fresh election on June 17, six weeks after a nationwide vote produced political stalemate after a surge in support for parties on the far left and far right who oppose austerity measures attached to a 130 billion euro rescue plan.

Polls show most Greeks want to keep the euro but are deeply dissatisfied with mainstream politicians and what they view as foreign-imposed hardship.

Although other European leaders have lined up to say they want Greece to stay in the eurozone, the Greeks have been warned that could be impossible if they vote for parties that refuse to implement the bailout conditions.

“There is a choice: you can either vote to stay in the euro, with all the commitments you’ve made, or if you vote another way you’re effectively voting to leave,” British Prime Minister David Cameron told the Greeks on the sidelines of the NATO summit in Chicago.

Britain is outside the eurozone, but like other world leaders, Cameron is acutely aware of the potentially catastrophic impact a Greek exit could have on the global economy – through the risk it could also force out larger economies such as Spain and Italy, causing the collapse of the euro.

With that in mind, Wednesday’s meeting of eurozone presidents and prime ministers is expected to place new emphasis on pro-growth policies.

Merkel, Hollande and other leaders are working to find common ground on ideas such as frontloading EU funding lines to support job-creation projects in Greece and other hard hit nations, or leveraging up to 60 billion euros in funding from the EU’s investment bank.

Hollande wants a “growth pact” to complement the EU’s new fiscal discipline treaty, and there’s talk of easing austerity by giving countries like Spain, France and Italy more time to cut budget deficits.

The hope is that a more growth-friendly agenda and some signs of compromise from Merkel will produce an “Hollande-effect” on Greek voters, boosting mainstream parties who support the bailout and euro membership.

Topics: Europe

soundoff (29 Responses)
  1. Ari

    Germans will never, ever accept shared debt in the eurobonds.
    Germany is only succesful because of their iron clad nationalism in protecting their own Unions and industries.

    May 22, 2012 at 2:26 pm | Reply
    • pozin

      Why should Germany accept this? That would be like me assuming my bankrupt neighbors' debts living the high life while I kept to a budget. Of course France wants this as they see their spreading their own debt to more prosperous neighbors. The time for 3 month vacations, retiring at 80% of pay in your early 50's is over for socialistic nations. They have found that the bill for such ignorance has come due.

      May 22, 2012 at 6:14 pm | Reply
      • guest1231245

        By the way, france has an interrest rate under 3 percent... pooling the bonds would not be beneficial for them, but indeed contrary to germany, not really negative neither...

        May 22, 2012 at 9:57 pm |
    • guest1231245

      Germany is successful because it has shifted to full export economy AFTER creation of the euro, in the middle of countries with consumer driven economies.... Without the euro, the schroeder politic would have led to an explosion of the value of the deutschmark, and driven them into crisis as theirs products would have been hell of expensive.
      The problem is that as germany has not increase its internal demand in a decade, all this production predate companies from the other european countries which are not more shielded by inter currency fluctuation... and surprise, the worst is the european situation, the better is germany... which has recorded its lowest unemployement level just as the same time as the rest of europe recorded their maximum unemployement....

      But nevermind all this, better to just say that euro crisis is due to socialism..... plus you don't have to use your brain...

      May 22, 2012 at 9:42 pm | Reply
    • iceload9

      Germany's restraint is applied equally across the country. Unions are not the boogeyman and when is the last time you read about corporate corruption and rewarded CEO's?

      May 23, 2012 at 8:02 am | Reply
  2. j. von hettlingen

    François Hollande's rescue plan will only encourage the Greeks to stand by their choice: to stay in the Euro, get the bailout billions and reject austerity measures. The BBC journalist Tim Wilcox reported from Thessaloniki, the second largest city in Greece. People there still go out and enjoy themselves, and are confident life would treat them kind and everything would be sought out for them. Not a worry in the world! Amazing!

    May 22, 2012 at 3:42 pm | Reply
    • j. von hettlingen

      Eurobonds have supporters like George Soros, who said the bonds could be a good way to reduce the borrowing costs of highly-indebted nations, while Italian Finance Minister Giulio Tremonti described them as the "master solution" to the debt crisis. The Germans believe such bonds could reduce the resolve of highly-indebted governments to balance their budgets.

      May 22, 2012 at 3:47 pm | Reply
      • j. von hettlingen

        Can you believe that, according to the Guardian, Greece was the world’s fourth largest arms importer. The US was the largest supplier, but France and Germany together delivered over a third of the total — with eager financing from French and German banks. Why would Greece indulge in an arms binge? Was it seeing an unfolding of the Cold War in Cyprus? Were the Greek Cypriots threatend by their Turkish peers?

        May 22, 2012 at 5:48 pm |
  3. Voiceinthedesert/Troubledgoodangel

    The answer are not the euro bonds but the ameuro, or the pegging of the euro to the dollar! I was the first to coin this word, but the idea was flatly rejjected by the EU architects, who wanted The United States of Europe to be independent. Just look at the results! They grossly overreached themselves. Look at China, which pegged its renminbi to the dollar! Was China wiser than Europe?

    May 22, 2012 at 4:26 pm | Reply
    • a

      aah. if only that were true. if only the eu and the usa were to combine. all the true americans would still stay in the "greatest country on earth" (not an independantly verified fact, just something every redneck says about this country) and the sane ones could get out and go to work somewhere not full of sick americans. that would be perfect. who knows, maybe america would be able to pull the EU out of their debt crisis by adding a strong economy to the mix.

      by the way, the rest of the world doesnt hate americans. they just laugh at americans. because they are too moronic to function in normal society. it's sad really. but mostly funny. to see a bunch of brain washed people waving flags, shooting guns and bowing down to the almighty dollar while wearing camoflauge and 5 gallon hats.

      meanwhile, let me leave this hell-hole.

      May 22, 2012 at 5:10 pm | Reply
      • dscon

        yep lets follow the euro plan.............
        yes you could go to work over seas and stay THERE with all your "sane" ppl

        May 22, 2012 at 10:15 pm |
      • Daniel

        Wow. I guess you just don't fool around when you stereotype do you? I won't bother defending my country. I don't need to. The one I find the most ridiculous is the 'moronic' piece. Count our patents per capita and our Nobel Prizes per capita and methinks you might find a 'data point' that doesn't quite fit your stereotype, but hey who am I to disillusion you?

        May 23, 2012 at 12:15 am |
    • Poul

      Why should Europe agree to pegging the Euro to the Dollar. The Euro has been much more stable than the Dollar and the US debt ($16 trillion) is much higher than the combined EU debt ($13 trillion). On top of that, the EU has a higher GDP (17 trillion) than the US ($15 trillion). If the value of the Euro goes down compared to the Dollar Northern Europe will export more to the US and the Euro will go up again.

      May 22, 2012 at 7:00 pm | Reply
      • Rob

        You should check your facts and sources. The Euro and USA are pretty close on all fronts for GDP and Dept. Just depends on what resource you believe. I can't count to a trillion so you have to believe one resource or another. In my readings there is really no much difference.

        May 23, 2012 at 9:26 am |
  4. BL

    The best solution I heard was for Germany to leave and go back to the Mark. They have a strong enough economy to survive a new currency and leave all the other counties to sort their problems with the Euro

    May 22, 2012 at 4:27 pm | Reply
    • Marine5484

      Thank you, BL. I totally agree. Germany would do much better economically if it left the Eurozone but this Angie Merkel is too bullheaded to see that. What Germany needs now is a change of leadership and to quit taking orders from Washington D.C..

      May 22, 2012 at 4:46 pm | Reply
    • Daniel

      If Germany went to the Deustchmark it would probably spike to 2 to 1 over the counter for USD almost immediately on the various currency desks. That would do very bad things for their export driven economy not to mention when all those contracts valued in Euros hit the 'currency repatriation' point and the exchange rate chews the h3ll out of the profit margins. No Germany wants no part of leaving the Euro.

      May 23, 2012 at 12:19 am | Reply
      • Rob

        Germany leaving the Euro would be a disaster for them. Funny that you could even think that.
        Greece leaving the Euro would be much better than any alternative.

        Hey, when people overspend they go to a bankruptcy lawyer to figure out which one is best... paying the debt or going bankrupt. Greece is way better of just going bankrupt. Otherwise, they will never be able to stand on their own again.

        Look at Iceland and how they handled there situation. Its a prime example of how to handle an issue like this. Why should the people pay for the issues that bankers and politicians created. The people I hear that complain the most about the Iceland situation are usually bankers or politicians that lost a lot of cash. Iceland people arn't lighting themselves on fire... they are just making more money on tourism and fish (because its much cheaper).

        I am looking forward to visiting Greece once its out of the Euro.

        May 23, 2012 at 9:31 am |
  5. Mouth

    The public should always support the poor, irresponsible, dumb, and unlucky.
    Spreading the failure slows the collapse, and ultimately allows the wealthy to properly milk everyone (even the responsible people).
    Who doesn't want this?

    May 22, 2012 at 4:37 pm | Reply
  6. JAL

    General Election fun: Anti-establishment has been offset by polarization of the GOP.

    May 22, 2012 at 8:33 pm | Reply
    • JAL

      "Say Uncle", he said without realizing he was the only one on the phone...

      May 22, 2012 at 9:30 pm | Reply
  7. Dell Stator

    You're kidding. Buy bonds from countries that are bankrupt or teetering on the edge? Great solution, for bankers to get rich I'm sure, selling these to pension funds etc that will sink the retirement money of the middle class into it, after all bonds from damaged economies will pay big, like russian bonds were payiing over 100% before they failed, remember that, google it. Another scam from the rich, for the rich, to be paid for by the middle class and poor (well the poor (biggest no of poor are actually our elderly and children) will pay by dying faster from lack of services).

    May 22, 2012 at 10:06 pm | Reply
  8. ✠ RZ ✠

    Jennifer Liberto article on CNN Money

    "Gensler's speech notes that swaps, now comprising a $700 trillion notional global market, were developed to help manage and lower risk for ommercial companies."

    How much ?? 700 Trillion ??? $700,000,000,000,000.00 ???  What's that, about a $100K for everyone on the planet ? 

    These numbers are so big they are no longer humanly fathomable. Why not make it, let's say, ONE QUADRILLION DOLLARS ?!?

    May 23, 2012 at 12:02 am | Reply
  9. Benedict

    Right now,the citizens of debt-ridden European countries are angry and it show in elections in this bloc. The charge to spread this debt to more affluent countries wouldn‘t be tolerated those citizens who can attack the ruling party electorally. Compromise on other means of encouraging growth must be found or bye-bye to the European Union!!

    May 23, 2012 at 4:26 am | Reply
  10. Common Sense

    France soon to join the rest of the PIIGS

    May 23, 2012 at 6:48 am | Reply
  11. madeinusa

    The only solution to fixing the EU mess, is to legalize Marijauna across Europe. I'm sure you would see growth happen faster than any bond idea. You want to bring money into your countries, hear the voice of the people!

    May 23, 2012 at 9:08 am | Reply

    From the looks of Hollande in the photo, it seems that he wants to break up the Euro.

    May 23, 2012 at 9:24 am | Reply
  13. Matt A.

    Eurobonds the answer? Why, is their a problem with sovereign debt default? because that's the ultimate destination.

    May 26, 2012 at 6:57 pm | Reply

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