23 November 2011

Sharon Bowles MEP: Eurobonds are a long-term answer but won’t solve immediate eurozone problems

Euro MP Sharon Bowles, Chair of the European Parliament's Economic and Monetary Affairs Committee, welcomes proposals on eurobonds which will be presented to her committee by European Commissioner Olli Rehn later today, but notes they will not solve the crisis in the short-term.

Eurobonds, where individual states issue bonds that are effectively backed by the entire eurozone, are widely considered by the markets as the best solution to the eurozone sovereign debt crisis, but Germany has consistently been opposed to introducing them, at least until much greater integration is achieved. 

Sharon Bowles believes that issuing one year "euro bills" in the meantime, as an interim measure, would help countries such as Italy in the current crisis and help to keep their reforms on track. 

She said: "Germany cannot afford to bail out Italy and Spain and the ECB refuses to be lender of last resort. Yet the ECB and Germany appear to be looking for an unusual type of Pareto optimum: putting the maximum pressure on countries to reform up to the moment where they go bust. This approach has broken the eurozone sovereign debt market. Unorthodox options such as eurobonds should be considered. 

"The European Commission has done well to come forward with options for eurobonds as a measure for helping eurozone countries pool their debts in the future. These options are plausible for two years down the line, but what about now? 

"One such interim option is for common issuance of one year euro bills. The average for one year bills at present would be 2 per cent interest. Interest could be differentially distributed under a contract so the weaker countries are in effect purchasing the mutuality. 

"There would also be an incentive for countries to stay on track with their reforms - if they did not keep on track they would not get to reissue the euro bills next year. This is a time-limited and finite plan so attracts the same constitutional permissibility as the scheme from the German wise men."

Original article

© Sharon Bowles