Eurobonds won’t happen anytime soon

I wrote a post earlier in the week at the New York Times on Eurobonds. I will be on RT at 4:30PM Eastern talking about Europe and the global economy. In Europe, my biggest concern is bank runs. Here’s my basic conclusion on Eurobonds:

With the depressionary circumstances in the European periphery dragging the euro zone into recession, policy makers are now discussing jointly guaranteed bonds, so-called euro bonds. Germany and Austria, however, have voiced strong opposition to this idea. Clearly, the issuance of joint euro bonds would help to solve Europe’s debt crisis by reducing the risk of default for countries whose sovereign bonds are under pressure. The question is whether it is politically realistic to expect euro bonds anytime in the near future.


Getting to euro bonds then requires some tricky political maneuvering. I have predicted that Germany will counter the push for a growth pact in the euro zone with its own push for a fiscal pact with teeth, a sort of souped-up Stability and Growth Pact that would permit penalties and E.U. oversight for failure to hit fiscal targets, potentially including euro zone expulsion. This is something that the present arrangement does not have.


Once a pathway to this kind of fiscal union is in place, countries like Germany and Austria will give euro bonds a go, but not before.

Read the full post on "The Path to Euro Bonds" at the Times website. The bottom line is Eurobonds won’t happen anytime soon.

Me, I am more concerned about the global growth slowdown in emerging markets than the crisis in Europe. This is a big, big story but no one is talking about it because Europe is sucking up all of the air. It’s not only Europe here. The reality is we are seeing a global economic backdrop with nearly every major developed and developing country slowing – all with less policy space across the board. That is not bullish.

P.S. – I failed to mention that this post is not an advocacy post but a forecast. My view doesn’t coincide with the German view but I think this is how things will play out.

  1. Dave Holden says

    Much of the cause of Europe’s and the worlds problems are the result of a broken private sector (horizontal) monetary system. But putting that aside for a minute:-

    What I see in Europe at present are electorates that want the stability of a German led Euro but not the discipline that Germany insists goes with that.

    What I see in Germany at the moment is an electorate who think they’re being asked to shoulder a burden unfairly and are fed up with being blamed for everything.

    Unfortunately I think lot of commentators (not yourself) seem to come at this from a viewpoint that ignores the nature of people and politics and the fact that economics *is a morality play*

    If there are two amounts of money X and Y where X > Y,  I think it’s often the case that people would rather lose X amount of money than loose Y amount of money if losing Y involves “bailing out” someone they think
    doesn’t deserve it – if only central bankers took this view..

    So no, I don’t think Germany will agree to Eurobonds.

    That said it would be silly to underestimated how much is vested in the EZ so I expect lots more very expensive heroic and hapless attempts to save it.

    1. Edward Harrison says

      When this crisis first hit I initially underestimated German willingness to fund bailouts. No longer. Like you, I believe Europe will go far to keep this unraveling.

    2. Debora Fabiana Valentinuzzi Sp says

       Eurobonds would not solve anything, only delay the end. The Ponzi scheme would just take longer to unravel completely than in the current situation.
      Only solution is complete fiscal, legal and political integration, like USA with political agreement and acceptance that the most efficient states will transfer to the less efficient ones.
      Until next time,

  2. Woj says

    Separately, I completely agree that the economic slowdown (especially among BRIC countries) is increasingly worrisome and yet being generally overlooked. 

  3. Debora Fabiana Valentinuzzi Sp says

    Edward is correct that is the critical piece of information. See each region is a gigantic Ponzi scheme that works only if there is growth. For instance, Germany & France lent money that they created out of thin air (fiat or emoney) to the poorer & less efficient economies in EU, apparently to help them, but in practice that money was mostly used to buy goods from the efficient Countries. Those countries increased their paper wealth (remember it all started with fake money), the story went that the inefficient countries were supposed to become efficient (hahaha…), and some people believed it, but what really happened is that the Ponzi scheme became obvious. And the obviousness of it all, became clear to more and more people as the economy slowed.
    But this would be just another economic cycle in the Keynesian world of monetization and growth through inflation. The problem is that this time, the Ponzi scheme of the EU, has also been used by Japan, the USA, India, China and most of the Latin Countries and THIS TIME IS INDEED DIFFERENT, since ALL of the PONZI schemes are becoming unraveled at the same time. It is something like a resonance in a physical system. Rather that a down cycle in the EU, it will create an unprecedented bubble burst in the whole world.
    I tried to caution world thinkers many times about this, but to no avail, they decided that my models were wrong that theirs were right. Nobody holds a crystal ball, so I still hope that I am wrong and they are right, but things are not moving the direction they predicted…

    Until next time,

  4. David_Lazarus says

    Eurobonds are not a solution unless there is full political union and I do not necessarily see that coming. All eurobonds do is bail out the banks again and leave the tax payer on the hook. What is needed is a debt clear out. With banks having to take their losses and a massive write off of debts and leverage. 

    Lets see what the Spaniards do about bailing out Bankia who today asked for €19 billion. What they need to do is allow the bank to fail and only bail out depositors up to €50000. Force creditors to take losses and force bondholders to do a debt for equity swap. 

    Though I do see that some solution that will delay the inevitable will probably happen. Germany might accept eurobonds when they see how things are deteriorating. 

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