Eurobonds Movement Picks Up

European leaders are making moves towards an international debt control by introducing eurobonds to the 17 member nations of the eurozone.  Organizers of the effort hope to assist financially troubled nations in regaining control of their debt levels, while at the same time-saving the euro currency.

BBC News reports European Commission President Jose Manuel Barroso will put forth measures to introduce eurobonds, after calling the current debt emergency “the most serious challenge of a generation.”

This comes as investors around the world, including the United States, worry about the ongoing market instability in Europe, and fear of default by nations like Greece.  Today European leaders tried to ease such fears in a special meeting with Greek Prime Minister George Papandreou.  He took part in a phone call with German Chancellor Angela Merkel and French President Nicolas Sarkozy.

How Eurobonds Would Work
Eurobonds would essentially serve as regular government bonds, allowing the 17 eurozone nations to borrow cash by selling securities to investors.  The governments would then repay the money over a fixed period.  The only difference here is that all member nations will back the debt collectively, instead of just one.

The movement is hailed by some leaders like Italy’s Finance Minister Giulio Tremonti, who called it the “master solution” to the debt problem.  Billionaire investor George Soros has also given endorsement.

Critics, however, call the introduction of eurobonds shortsighted.

Riccardo Barbieri, chief European economist for Mizhuo International wrote in a piece appearing Wednesday in Bloomberg Business Week:

“What proponents of euro bonds ignore is that, unless the initiative stems from a broader process leading to economic and fiscal union, it risks taking the euro area into an even more disruptive phase in the future. Euro bonds would buy the weaker European countries time to complete their economic and fiscal adjustments. However, if these adjustments failed, or if the appetite for reforms and fiscal austerity waned, the weaker countries would have to return to issuing domestic bonds at prohibitively high yields and may ultimately default.”

The Post previously examined the issue in the article “How Eurobonds May Save Europe” back in August.  Since then, politicians, bloggers and analysts continue to take a stab at the issue, debating the advantages and disadvantages.

Alessandra Baldissin of the organization Debating Europe contacted The Post last week, informing of a lively debate on their online town hall-like forum, which is supported by the European Parliament.

The site quotes former Romanian Finance Minister Daniel Daianu, a past member of the European Parliament, who supports eurobonds in theory but warns a more comprehensive stability regime is required.

“One has to think about the flaws of the Eurozone. And I’m referring to the lack of a common treasury,” he said.

“Not only world experience, but also theory indicates that an economic union cannot function properly unless a single currency is underpinned simultaneously by – not simply fiscal rules – but by fiscal integration.”

Another blogger identified as Christos Mouzeviris says:

“I do not understand any hesitance on the issue: we have a common market, a common currency, it is only natural that we need common financial policies to make the eurozone work.”

The Post will continue to watch the international debate on eurobonds as well as related future policy proposals.

 

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