Talks About Euro Bond
On the weekend of dispute about the common Euro-bond was further fueled. Several German politicians and managers were against the Euro Bonds.
Hardly an issue splits the euro area currently as deep as the Euro Bonds. While Luxembourg’s prime minister and head of the Euro group, Jean-Claude Juncker are tirelessly fighting for the common bonds as an appropriate means to overcome the European debt crisis, especially Germany and France vehemently oppose such a measure. Because the involvement in the bond sale it would alter the credit rating of Germany and France. This would ultimately lead to higher interest rates. Besides, they would have joint liability for the debts of others who have lived beyond their means.
17 billion euros of additional burden for the federal government?
According to a report in the “Frankfurter Allgemeinen Sonntagszeitung” would be on the federal budget because of higher interest rates to an annual load of at least 17 billion euros. For, according to calculations by the Federal Government would result by the Euro Bonds a spread of 1.58 percentage points. This results from the difference of the average yield of all the euro-zone circulating government securities (3.31 percent) and the actively traded government bonds and other securities of the Federation (1.73 percent).
Chancellor Angela Merkel said to the demand of Juncker for euro bonds: “There shall be no pooling of risks.” Horst Seehofer was even tougher. He warned at the weekend to guard against the common bonds of the euro countries. “If the debt of the euro countries end up in a pot, no one can longer distinguish between good and bad risks,” he said in the Bild-Zeitung.
During her strict no to € Bond gets the federal government did consent of the SPD. Their party leader Frank-Walter Steinmeier said to the “Saarbrücken Zeitung, to times of lower interest rate differentials on bonds of euro area countries still had that been possible.” Now I see no chance for that.”
Opposition from the business
Even from the economy, it was the weekend backing for the German politician. The Federal Association of German Banks praised Merkel for her opposition to the common bonds. Everyone should be responsible first and foremost for themselves. Otherwise, the fiscal irresponsibility would open the floodgates, President Andrew Schmitz said to the Rheinpfalz newspaper. The head of the world’s largest reinsurer Munich Re spoke out against Euro Bonds. “The euro bond at an interest rate for all States would be a joint liability of the euro countries and the unification of the credit,” he warned against the news magazine “Focus”. This would contradict the EU Treaties.
That Germany and other euro countries already provide guarantees and direct grants for Greece and Ireland in order to prevent a breakup of the euro zone, the politicians and managers were, however, usually unmentioned. Thomas Mayer, chief economist of Deutsche Bank, was because in the “Sunday newspaper” that “we are following the rescue of Greece and Ireland have to some extent a society with unlimited mutual liability” would have. He proposed a limit for Mutual debt liability in the amount of total debt from 60 percent to gross domestic product.
It could mean € bonds help to reduce the current tensions in the bond markets. The demand for euro bonds is correct, because investors that the euro countries no longer play against each other.
And French President Nicolas Sarkozy rejects € Bonds. He wanted first to promote political integration in the monetary union and then talk about Euro Bonds, according to the press. “We cannot push a horse from behind,” said Sarkozy.
It is likely that the dispute over the Euro Bonds will overshadow the Summit of Heads of Government in Brussels on Thursday. An agreement is remains to be reached, although many see such a compromise to be impossible to make.11