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.