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The inevitability of a Euro Bond

May 28, 2012

Watching the European train wreck, it increasingly seems clear that some sort of Euro Bond is unavoidable.

I understand the German resistance to the idea, not wanting to basically institutionalize a bail-out process for more spendthrift neighbors, but if the Euro experiment is to continue, a Euro Bond just looks like something that needs to happen.

The main benefit is that it would lower interest costs for the countries in the biggest mess and give some of them (maybe not Greece) a chance to climb out of their financial hole.

Indeed, in retrospect it almost seems incredible that a common currency was created without a common debt instrument. Sure, hindsight is 20/20 and afterall, there were regulations and agreements to keep government finances in check. But those regulations were loosely enforced/often ignored and it is clear now (as perhaps it should have been then), that when you let a bunch of countries use a common currency, to borrow on their own, with little real oversight, huge faults would appear.

But as inevitable as a Euro Bond may appear, there are some real consequences that would give a lot of people the heebie-jeebies:

Once European governments began financing one another on a large scale, they would certainly also want more say over one another’s budgets and big-ticket items like military spending or pension systems. For those who advocate a more powerful “United States of Europe,” these changes would be good. But they would represent a huge transformation of the decentralized Europe that exists today.

I don’t see a United States of Europe happening anytime soon. So it is possible to have a Euro Bond without a US of E? I hope so… otherwise this euro-mess will get a lot worse.

 

As Euro Bond Wins Supporters, Details Remain Vague – Europe Business News – CNBC.

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