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 Post subject: Eurobond offered as debt solution
PostPosted: Mon Nov 21, 2011 12:28 am 
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Too Big to Fail

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Headline in the FT tomorrow
Eurobond offered as debt solution
This seems to be the story




Commission proposes ‘eurobonds’

By Peter Spiegel in Brussels
Euro coins and bills manufacturing

The introduction of a joint “eurobond” that would replace national issuance by individual members of the eurozone could offer the best solution for policymakers seeking a more stable sovereign debt market, according to a study by the European Commission.

To be published on Wednesday, but seen by the Financial Times, the study argues that the creation of commonly backed “stability bonds” would ensure all eurozone members could meet their financing needs and create a vast market that could compete with US Treasuries as a global benchmark.

“This approach would be most effective in delivering the benefits of stability bond issuance,” the report says. “[It] would assure full refinancing for all member states irrespective of the condition of their national public finances.”

The complete substitution of national bonds for so-called “eurobonds” is one of three options outlined in the study. The report acknowledges that the move would require extensive changes in European Union treaties that could delay its implementation for years.

In addition, such extensive pooling of sovereign debt has been fiercely resisted in Germany, where officials believe it would relieve market pressure on profligate eurozone countries, allowing weak economies to become “free riders” on Germany’s strong credit rating.

Still, senior EU officials believe Germany can be persuaded if the scheme includes strict rules over sovereign spending, and the Commission report includes proposals for vastly expanding Brussels’ authority over national budgets. “That’s what makes it workable and realistic, and that is what is a starter if we want to have a chance of being convincing,” said one senior EU official.

One idea is for EU approval of all 17 eurozone budgets and, in the case of a country in trouble, the possibility of putting it “under some form of ‘administration’ ” by EU authorities.

“Without this framework it is unlikely that this ambitious approach to stability bond issuance would result in an outcome that would be acceptable to member states and investors,” the report says.

José Manuel Barroso, Commission president, is also expected to propose increasing EU surveillance of eurozone budgets on Wednesday that could be implemented immediately. According to a draft, the proposal includes requiring eurozone governments to submit budgets to Brussels for evaluation before they are turned over to national parliaments.

The eurobond report finds that the other two options could be adopted more quickly, particularly a plan that would only have countries provide limited guarantees for new bonds, but not eliminate national bonds or pool their risk – an approach similar to bail-out bonds currently issued by the eurozone’s €440bn rescue fund. It would not require treaty changes, the report argues.

An intermediate approach, where a large portion of national debt would be funded through eurobonds but countries would be forced to issue national bonds if their debt levels got too high, would require treaty change, but would not eliminate the budgetary discipline required by market forces.

http://www.ft.com/cms/s/0/da6468de-136f ... z1eI6UYU6T


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 Post subject: Re: Eurobond offered as debt solution
PostPosted: Mon Nov 21, 2011 12:53 am 
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Quote:
In addition, such extensive pooling of sovereign debt has been fiercely resisted in Germany, where officials believe it would relieve market pressure on profligate eurozone countries, allowing weak economies to become “free riders” on Germany’s strong credit rating.

This is a legitimate concern, but the converse of that is that at present Germany acts as a free rider by having its currency artificially weakened by being pooled with the PIGS, massively benefiting their exporters. They seem to want the benefits if that sort of association without the drawbacks.


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 Post subject: Re: Eurobond offered as debt solution
PostPosted: Mon Nov 21, 2011 1:23 am 
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Too Big to Fail

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This is starting to feel like an episode of the X Files. As if some Cancer Man in the EU engineered this crisis so Brussels would get more power!

Or have you ever been to a presentation given by a management consultant? "Listen guys your integration (that we told you to do) is failing...the solution is more integration"


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 Post subject: Re: Eurobond offered as debt solution
PostPosted: Tue Nov 22, 2011 10:55 pm 
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Eurozone crisis: European Union prepares for the 'great leap forward' -> http://www.guardian.co.uk/business/2011 ... nion-plans

Quote:
The buzzwords in the corridors of the commission's Berlaymont building in Brussels are "discipline, surveillance and enforcement". Countries that fail to follow the austerity writ from Berlin and Brussels are liable to be subject to harsh sanctions – perhaps fines of 0.2%-0.5% of GDP, and the withdrawal of wealth transfers from the richer regions of the EU to the poorer ones.

Fines will be complemented by intrusive "supervision". Last week Barroso told the European parliament in Strasbourg that those countries struggling to lower excessive levels of debt will also be subject to intervention from Brussels in "domains previously restricted to national governments or parliaments".

there is more


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 Post subject: Re: Eurobond offered as debt solution
PostPosted: Tue Nov 22, 2011 11:06 pm 
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Present model of Euro is unsustainable. It has to be either this way or that way.
There has to be fiscal consolidation and one authority making major financial decisions (That would be Germany by default) or it will break into pieces. Germans are having free ride but only because they are bailing out others.


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 Post subject: Re: Eurobond offered as debt solution
PostPosted: Wed Nov 23, 2011 12:56 am 
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I don't think this will fool the markets.

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 Post subject: Re: Eurobond offered as debt solution
PostPosted: Wed Nov 23, 2011 1:05 am 
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It will surely pull the wool over their eyes for at least 48 hours. The yanks are getting a bit worried now too. They plan to stress test BAC,JPM,C,GS,ML and Wells Fargo in event of collapse. Guess they feel there is a fair chance of the brown stuff hitting the air circulation unit.


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