Call for a common eurobond market to slash costs
Published 27/01/2011 | 05:00
MEP and ex-Belgian premier Guy Verhofstadt has called for a common eurozone bond market to be set up as part of an overhaul of the bloc's budgetary surveillance system.
Mr Verhofstadt says a functioning eurobond market will slash borrowing costs for the 17-member single currency zone.
However, Germany remains adamantly opposed to a move that would lump its stellar credit rating in with those of Ireland or Greece.
Finland and the Netherlands are also against introducing the bonds, while France says EU states need to concentrate on slashing their deficits before pooling their debt.
But buoyed by the success of recent debt auctions by the EU's two rescue funds -- which raised a combined total of €10bn for the Irish bailout this month -- Mr Verhofstadt says bonds should now be issued to fund the debt of countries that are not in need of emergency cash.
"We are now using eurobonds to rescue some countries -- why not use this successful instrument to create a real bond market in the eurozone," he said yesterday.
Only solvent countries would be admitted to the market, with heavily indebted states forced to refinance their debt themselves.
Mr Verhofstadt says there would be a small liquidity premium -- around 0.5pc -- on top of the borrowing cost to entice reluctant participants. The Government is currently borrowing EU and IMF money at an average of 5.8pc -- including a premium of around 3pc -- but the Government is lobbying to get this lowered.
Germany has recently relaxed its stance on the interest rate, but EU sources warn that talks are likely to be protracted and the decrease only marginal.
Berlin is more concerned with getting countries to adhere to much stricter budgetary surveillance and spending brakes.
New rules that will see countries being fined for flouting EU debt and deficit limits are currently winding their way through the Brussels legislative pipeline. The European Parliament and all 27 EU governments will have to approve the drafts before they become law.
The package, proposed by the Commission, also suggests penalties for countries that fail to correct excessive wage growth or housing bubbles.
Mr Verhofstadt's group -- which is penning opinions on two out of the six draft laws -- is pushing for the EU executive to be granted emergency powers to fine countries without interference by governments.
He says that fines collected from persistent offenders should be used to bolster the eurozone's €440bn stability fund.