Tuesday 12 December 2017

Juncker is right to push idea of Eurobond

It faces opposition from the German courts, French politicians, German chancellor Angela Merkel, segments of the bond market, the Austrian finance Minister and even EU Commissioner Olli Rehn, but the simple and neat idea of solving Europe's debt crisis by issuing a Eurobond won't go away.

Angela Merkel is fuming that proponents like Jean Claude Juncker and Giulio Tremonti keep pushing the idea and it doesn't help that both gentlemen are either from small countries like Luxembourg (Juncker) or debt laden countries like Italy (Tremonti). The German opposition is not about cost, apparently.

Instead German opposition spokespeople say it is because such a bond -- where European economies simply issue a joint bond US-style -- is not permissible under various EU treaties, including Lisbon.

Angela Merkel for her part simply says Eurobonds are not the answer.

It is a reasonable position -- German borrowing costs would rise under such a mechanism (by up to 100 basis points under some estimates) and the German taxpayer would effectively be subsidising taxpayers in other states who have elected atrocious politicians who have sabotaged their exchequers.

There is also the second problem that if more feckless countries know their borrowing is easily obtainable and cheaply available, they would be less likely to get their own fiscal affairs in order.

But for all of that, the issuing of a Eurobond (effectively a fiscal union of Europe) still appears to be the only viable silver bullet to solve the crisis and when euro enthusiasts like Juncker say it must be studied, it means it will not disappear off the table for some time.

A decent bet is that by the time Ireland re-enters the bond market, in about two to three years time, such a mechanism is likely to be in place, even in the teeth of fierce opposition.

Irish Independent

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