‘Mutualization of sovereign debt’ has always been the point of the Eurozone, at least on this journal’s reading of the history. And now Europe is on its way to securitizing its debt with some modern version of the War Bond – tried and true, the suckers fall for it every time. It’s a bit odd, don’t you think, for Western nations that spend so much time watching poker and gaming on television? But maybe the games we love – poker, hockey, soccer, mmorpgs, etc – are too honest (involving chance) for people to pay attention to the way things go down on the grand chessboard of history – via debt and aggression and deception, apparently. It’s becoming easier to believe that nations act like individuals in times of war by observing both the mobilization of the economy and the military against chosen targets (sanctions, then war; sanctions, then war providing a neat duality to the modes of aggression between states). Is there a zeitgeist that moves the spirit of a nation towards an inescapable conclusion (we rule, you suck) as Hegel and various notions of national and religious zeal advocate? Or does the idea of free will, both on the individual and the national levels, not provide reason enough to organize society on a decentralized model. It would, at the very least, prevent megalomaniacal idiots with money from seizing the tiller of the nation and robbing it blind. (Hello, G20 budget.)
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Ian Traynor, The Guardian
June 4, 2010
Germans fear ‘mutualisation of sovereign debt’ if eurobond plan goes ahead
European governments are considering the issue of common “eurobonds” for the first time as part of their huge exercise in staving off a sovereign debt crisis across the Mediterranean and shoring up the single currency.
EU finance ministers are to meet in Luxembourg on Monday to establish the workings of the ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬750-bn (Ãƒâ€šÃ‚Â£650bn) safety net agreed last month following weeks of crisis and dispute.
The ministers, from the 16 of 27 EU countries in the single currency, are to haggle over two options for the operations of the rescue fund — borrowing on the markets to lend to a country in distress, or guaranteeing the borrowing of the cash-strapped country. The first option amounts to eurobonds, senior officials told the Guardian.
The “eurobond” issue is acutely sensitive, especially in Germany which is allergic to any hint that the lending vehicle will enshrine budget transfers from the stronger to the weaker eurozone members. Sceptics fear it would entail mutualisation of public debt, and Germany fears jeopardising its liquidity and low borrowing costs. But in agreeing to supply up to ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬148bn of ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬440bn for the eurozone rescue fund, Berlin is already committed.
“The Rubicon has been crossed. In agreeing to the [ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬440bn] special purposes vehicle, they have already accepted it,” said an EU official.
The overall package is split into three — ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬60bn in fast-track funds borrowed against the EU budget and administered by the European commission, ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬440bn from the eurozone countries, plus ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬250bn from the International Monetary Fund.
On Monday the ministers are to create a new entity to run the ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬440bn fund, the European financial stability facility (EFSF), based in Luxembourg, with a 16-strong board, one from each single currency country. The ministers are expected to appoint a chief executive and managerial staff.
An EU diplomat said that any EFSF issues would “amount to a eurobond in all but name, all these countries coming together under one umbrella to borrow”.
The European Investment Bank, also based in Luxembourg and headed by Philippe Maystadt, a former Belgian finance minister and deputy prime minister, is to help run the EFSF.
“One way is the funded route, the [EFSF] borrows and lends,” a senior EU official involved in the negotiations said. “In this case the bond issue from the entity with the guarantee of 15 eurozone countries could be seen as eurobonds.”
Jean-Claude Juncker, the Luxembourg prime minister and head of the euro group, signalled the issue was incendiary. “Can the vehicle we are going to put into place on Monday take us to the issuing of eurobonds?” he asked. “If I said ‘yes’, then everything would be done to avoid the creation of this instrument.”
The alternative to an EFSF bond issue is for the 15 governments to guarantee the borrowing of the country needing help, Spain, Portugal or Ireland, for example. Senior sources said the likely outcome would be to combine both methods.In order to stabilise soaring debt and deficit levels and reduce borrowing costs for the weaker eurozone members, there have been several calls, fiercely resisted by Berlin, for the introduction of joint euro group bonds.
Herman Van Rompuy, president of the European Council, who is chairing a “task force” trying to chart a way out of the crisis, proposed the eurobond option a fortnight ago. Juncker is known to support him.
The rescue fund was agreed over a dramatic weekend of summitry last month to ward off what many feared would be a Black Monday, May 10, with the euro imploding amid a chain reaction of sovereign debt default along the Mediterranean.
Some see the ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬750bn pot as a precursor to full-scale eurobonds and a “European Monetary Fund.” But senior officials insisted it was a temporary three-year measure.
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