Euro Bonds

[Obsidian 10]

I was reading an article about EU summit today and it made me wonder since I am not familiar with bonds

Why do others push for euro bonds and why does Germany stand against that?

[johnw 10]

I was reading an article about EU summit today and it made me wonder since I am not familiar with bonds

Why do others push for euro bonds and why does Germany stand against that?

 

Very briefly Euro bonds will be underwritten by the Tax Payers in ALL Euroland equally.

 

The Germans hold the view that the PIGS will relax back and let the Germans do the heavy lifting since they have more to lose [ie AAA rating].

 

Also they are afraid that their cost of borrowing will increase since Euroland will be viewed as one identity rather than individual Countries as is now the case.

[SIUYA 11]

spot on.

from an article this says it all

"But the German government is staunchly opposed to euro bonds until deeper integration and harmonization of budgetary and public spending policies have been achieved. Most Germans see euro bonds as another way for fellow European states to benefit from, and ultimately drag down, Germany’s unblemished credit rating."

 

A lot of this past overborrowing could be attributed to the fact that the interest rates were to low for these countries and that they were already leaning too heavily on the stronger euro zone countries. While Euro bonds have been proposed to act as stability, we all know that in reality its like giving an addict a new addiction.

[Obsidian 10]

SIUYA and johnw, thanks a lot, I got it

[johnw 10]

The Euro Bond issue fully exposes the weak underbelly of the common currency ... federalism v nationalism.

 

The Germans believe [rightly or otherwise] that a Federacy will solve the currency problem AND permit them to retain their nationalism since they are the largest Nation.

 

Smaller, weaker Nations see federalism as the arch enemy of Nationalism and do not want a bar of it.

 

This leaves the situation at best as an unworkable compromise.

 

Germany/Netherlands believe they have a ready export market within Euroland at ex factory pricing since there is no exchange mechanism to artificially inflate the sale price of their exports to weaker corners of Euroland ... plus the icing on the cake is that the PIGS are holding back the value of the Euro, which leaves German exports to US, China etc more competitively priced.

 

So where does that leave the gross imbalance in productivity between North and South Euroland ... well it leaves it flapping in the breeze because every time it becomes the centre piece of conversion we return back to Federalism v Nationalism ... which remains unsolvable as we know.

 

No doubt, at some stage some bright spark is going to bring up the two tier system as practised in South America where the dollar has been used to hedge the local currencies and bring some stability to real estate.

 

This type of wooly thinking would buy time for the Euro Leaders to complete their terms thus leaving an even bigger mess for the next guy, but since they are already dropping like flies at the polls, this is hardly relevant anymore.

 

The latest mutterings that default by Greece would be dreadful for the Greeks, tends to indicate that a quick clean exit will probably go rather well for them.

I imagine that Russia or China would be more than accommodating to gain a backdoor in Europe plus a Mediterranean Port or two.

And wouldn't a France/Italy combo be a far better fit than the unworkable Franco/German dream of Sarko and his girlfriend ..golly even Spain might join in the fun.

 

With China well on it's path to a hard landing, taking Asia with it (and this includes it's southern province of Australia), all the Japanese need to do is devalue the yen 40%+ and they will not only solve their internal dilemmas but they will unseat S. Korea and put a further dent in China for many years to come.

 

Nobody can say that our brave little world is a boring place and our brief flirtation with social democracy over the last hundred years is dying as we speak ... this makes Obama's foray into socialism even more difficult to comprehend as he is arriving at a party from which everyone is leaving because they have drunk all the alcohol.