Eurobondage? Not a Chance

According to German Chancellor Angela Merkel, the issuance of a euro bond would repeat past mistakes.

To force one single interest rate by means of eurobonds politically, which already have not worked on the markets, would be repeating of an old mistake and not the lesson learnt from experience.

This announcement, before tomorrow's EU summit, will set the tone for the conference. I see Germany holding its economically conservative position. I also see the PIIGS + France begging for money. In the end, I imagine a lot of people will be disappointed with conference outcomes.

"The summit can only disappoint, in the sense that the markets want a quick fix," said Andreas Utermann, global chief investment officer at Allianz Global Investors. "There is no quick fix for this."

Harvard professor, Niall Ferguson, believes that a quick (and lasting) fix is exactly what Europe, and the world, needs.

"The key negotiators, including the German chancellor, do not really understand the timeframe we're working under," Niall Ferguson, a professor of economic history at Harvard University, said at a conference in London. "The timeframe for financial crises is days. The timeframe for structural reforms is years."

The summit will at least provide some more information about plans for future EU integration. A lot of the focus will be on Spain's and Italy's current problems. I just hope we will get some interesting news on a future banking and/or fiscal union.

Does anyone else think the EU, at least in its current form, is destined to fail? A lot of EU action in the past two years has been a continuation of the kicking the can down the road strategy. The political, economic, and especially cultural differences between many of these countries are just too great for any real form of integration (cultural differences can explain politics and economics). Why would a country like Germany share a currency with a country like Greece? German's like to build nice cars, while Greek's enjoy torching the offices of job providers.

Reading List:
Merkel says no to eurobonds - bloomberg
EU Summit, no quick fix - cnn
Merkel says no to eurobonds - cnn

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Comments (5)

Best Response
Jun 27, 2012 - 5:24pm

Political brinksmanship, or is Merkel stuck because of her past rhetoric?

Check out this interview with George Soros on this issue yesterday...…

"There is no question that a breakup of the euro would be very damaging, very costly, both financially and politically. And the biggest loss would be incurred by Germany. Germans have to bear in mind that, effectively, they have suffered practically no losses so far. Transfers have all been in the form of loans, and it is only when the loans are not repaid that real losses will be incurred."

He goes on to estimate that Bundesbank exposure could reach €1 trillion by year end...

Jun 27, 2012 - 6:46pm
Political brinksmanship, or is Merkel stuck because of her past rhetoric?

Check out this interview with George Soros on this issue yesterday...…

Great interview! I was looking for something like this when I made the post. I really like the parallels Soros made between now and post WW2/Bretton Woods.

It is interesting that Soros seems optimistic that Spain/Italy will be able to repay debt if they get some form of financing through an EU fiscal union euro t-bill. He then takes the opposite side of the coin, saying that Merkel is stuck with her hard line austerity position (which would be very bad for the EU).

I think Soros' last quote sums it up the best.

As an investor, I would be very pessimistic, especially about Europe. But as a believer in an open society, I have to put my faith in the people and leaders of Europe to show some reason.

I am definitely a believer in an open society. I am definitely not a believer that the leaders of Europe can "show some reason." I think the EU might be SOL.

What are the chances, that after the summit, Greece is out of the euro and the EU forms a fiscal union to endorse euro t-bills/euro bonds? I'm not sure if EU members would be able to get rid of Greece, and then go on to integrate and help Spain/Italy. I have a feeling that countries like Spain, Italy, Portugal, and France see Greece as a brother that went down the wrong path, but won't abandon him when he drags the whole family down.

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Jun 28, 2012 - 2:42pm

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