With the expansion of the EFSF – the idea that levitated markets throughout October culminating in Oct. 27th’s moonshot – alreadylooking dead, the EC leaks the next bazooka: A proposal for joint issuance of bonds among member nations. This one may not have any legs as Germans are vehemently opposed to going joint and severally liable with their spendthrift neighbors, and their constitutional court seems to have put the kibosh on the idea 2 months ago.
BRUSSELS—As the euro zone’s debt crisis threatens to draw in more victims and a plan agreed to expand the currency’s bailout fund looks set to disappoint, the European Union’s executive arm will this week float proposals for joint issues of bonds among the currency’s 17 governments.
The proposal to end the crisis from the European Commission calls for the euro zone to use its combined strength in the bond markets to replace some or all of the fund-raising currently being done by national governments.
The proposals for common bond issues are unlikely to gain traction soon: Germany, the strongest economy in the common currency, remains resolutely opposed to the idea, fearing it would be stuck with the bill for other governments’ spendthrift ways. But the commission’s discussion document appears designed to trigger debate on one of the few ideas that economists think offers the prospect of ending the crisis.
The commission’s proposal to create euro bonds reflects how critical is the search for a lasting fix to the euro-zone debt crisis, given the failure of the bloc’s temporary patches. Most critically, confidence is waning that the European Financial Stability Facility, the temporary fund set up in the wake of Greece’s bailout, will ever achieve the heft needed to reassure investors financing weak euro-zone governments that their lending is safe.
The commission discussion paper suggests three options for issuing euro bonds. It concludes that they could be issued carrying limited guarantees from governments without changes to the European Union treaty that would require ratification from all 27 EU states. But it says that the benefits would be greater if all governments agreed to jointly guarantee bonds issued by the euro zone—but this would require changes to the treaty.[views]