Ireland and 8 Other Eurozone Countries call for Eurobonds

JacquesHughes

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The Guardian seems to think this is a significant development

Ireland and 8 other Euro states call for a 'common debt instrument' ( eurobonds) to help their economies through and after the coronavirus crisis; the euro stability mechanism will not be enough.

Can't say I follow much of this fiscal/monetary distinction, but the key things are, surely, 12 years after the 2008 crisis, the UK ( Ireland's biggest trading partner) is completely outside the tent, and down in Club Med, the Italian economy had not fully recovered to 2007 levels, and is now hit with the most severe coronavirus epidemic of any country so far.
( I don't see that the Italian economy being 4% smaller than in 2007, is much of a problem if the population is 4% smaller too)

Sterling buys €1.08 today, because , presumably, the money markets are unimpressed by humungous Johnsonian borrowing, and brave British talk about walking away with 'no deal' in June; just a few weeks of lockdown away. Are these eurobonds good, or neccessary, or a distraction from the crisis in hand?
 


YouKnowWhatIMeanLike

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Italy wants them be known as Corona-Bonds or if this crisis is not sufficient to justify Euro-Bonds to tap the ESM emergency credit line to the tune of 450bn euro.
 

owedtojoy

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Not just "the Guardian", the article is by Adam Tooze, possibly the world's foremost economic historian, and author of a much-read book about the 2008 financial crash.

Tooze is worth listening to - Eurobonds are needed (he argues) to stave off another debt crisis. Italy, for example. can only stump up 24bn euros of a stimulus, small compared to the UK. Italian banks have always been shaky, and now they will be shakier than before. The piecemeal approach of 2008 and after must be avoided, Tooze says, and some debt-sharing mechanism must be found to help the weaker partners.

Germany is against Eurobonds, which offends their natural inclination to parsimony over debt. But there may be a way around by special "coronabonds" tailored for the current crisis.


 

Buchaill Dana

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The argument is simple. Lets not repeat 2008 and get organised ahead of the inevitable crunch that is coming. Who could be opposed to that?
 

owedtojoy

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An interviewee on Pat Kenny (a UCD Professor I think) said the favoured mechanism is the European Stability Mechanism established after 2008 that has something liKe 400bn euros credit at low interest to cash-strapped countries.

The Germans (following the populist electoral successes) admit now that Enforced Austerity maybe was not a good call last time around. But they are still against "Eurobonds" in the form proposed.

That being said, the CDU of Angela Merkel, and the SDP, has also approved a massive stimulus to their own economy. They learned last time out the futility of remaining economically strong while the rest of Europe stagnated. Long term, the political and economic results were not good.
 

Lumpy Talbot

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No
Tony Connelly mentioned Coronabonds last night on RTE News. It would mutualise Italian, French, Sapnish debt with Germany.

The Germans would see that as an invitation to an absolute mugging. It is the only possible way for France to vanquish Germany once and for all- by privatising France's national debt with Germany caught in the headlights as the only buyer. Not going to happen in the vanilla fashion suggested, that's for sure but then Euro member states are actually systemic.
 

YouKnowWhatIMeanLike

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The Germans would see that as an invitation to an absolute mugging. It is the only possible way for France to vanquish Germany once and for all- by privatising France's national debt with Germany caught in the headlights as the only buyer. Not going to happen in the vanilla fashion suggested, that's for sure but then Euro member states are actually systemic.
and who would trust Eurobonds in a few years? even with Germany in the mix to carry the debt, it will be a tough sale. Eurobonds will be the tombstone of the European Union. but with no alternative around for Italy, Spain and France at the minute, all hopelessly uncompetitive economies loaded with debt. so debt mutualisation looks like a very tempting quick fix. money for nothin'
 

owedtojoy

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Europe is not the only large scale economy with a problem of differential economic performance. The US has this problem too.

[States are] about to confront enormous budget shortages, too. This is the sleeper issue of the current economic crisis, and aiding states now could well be the difference between a brief recession and a prolonged depression.
The bill the Senate passed .... will be nowhere near sufficient to prevent cascading state and local government layoffs and cuts to critical public services that otherwise lie ahead. For context: States suffered a cumulative $600 billion revenue shortfall in the first five years after the Great Recession hit.
There were always fears that the world economy had not fully recovered from the Great Recession, and an economic shock would trigger another Great(er) Recession. Those fears seem to be coming to pass.


Europe may be as well prepared as anywhere, with the European Stability Mechanism able to provide cheap loans. Something more may be needed, though.
 

ShoutingIsLeadership

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The argument is simple. Lets not repeat 2008 and get organised ahead of the inevitable crunch that is coming. Who could be opposed to that?
President Higgins has just told Pat Kenny that the burden should be shared and that those opposed to the bonds need to get over the objection (words along those lines, I can't recall the exact words)
 

paulp

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President Higgins has just told Pat Kenny that the burden should be shared and that those opposed to the bonds need to get over the objection (words along those lines, I can't recall the exact words)
He's probably right, but sometimes I feel people complain about German financial disciplinary rules that they try to impose on the rest of the EU and at every crisis, also expect Germany to carry the load.
 

Lumpy Talbot

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No
Germany benefits the most or has done up to now from the single market and by extension via EU trade deals with the rest of the world because they had a very large share of EU exports in terms of cars, trucks, heavy industry and all the things their economy is known for.

Back in the early noughties there was a proposal put forward that EU member states should be restricted to borrowing levels which should not exceed 3% of GDP for the relevant member state. Considering what happened five years later it is easily forgotten that the so called 'prudent' sector of the European economy in Germany and France were the very member states which vetoed that suggested borrowing limit.
 

YouKnowWhatIMeanLike

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Germany benefits the most or has done up to now from the single market and by extension via EU trade deals with the rest of the world because they had a very large share of EU exports in terms of cars, trucks, heavy industry and all the things their economy is known for.

Back in the early noughties there was a proposal put forward that EU member states should be restricted to borrowing levels which should not exceed 3% of GDP for the relevant member state. Considering what happened five years later it is easily forgotten that the so called 'prudent' sector of the European economy in Germany and France were the very member states which vetoed that suggested borrowing limit.
that would be an unfavorable measure, Ireland's balance of trade is much bigger relative to its size than Germany's. Think of all the tax bookings Apple, Google, Johnson, Intel, Facebook, Microsoft, Allergan and not to forget the financials run by revenue every month. There has to a better story to force Eurobondage on Germany. I'm telling ya trade balance sheet numbers won't be enough to mutualise our debt with Germany.
 

de valera's' giddy goat

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President Higgins has just told Pat Kenny that the burden should be shared and that those opposed to the bonds need to get over the objection (words along those lines, I can't recall the exact words)
isn't that an overtly political statement by the President?
 

Lumpy Talbot

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No
that would be an unfavorable measure, Ireland's balance of trade is much bigger relative to its size than Germany's. Think of all the tax bookings Apple, Google, Johnson, Intel, Facebook, Microsoft, Allergan and not to forget the financials run by revenue every month. There has to a better story to force Eurobondage on Germany. I'm telling ya trade balance sheet numbers won't be enough to mutualise our debt with Germany.
I suspect Germany would fight like a cat in a bag to avoid any notion of mutuality in European debt. Furthermore the American Fed would be on the phone to get that idea nixed straight away.
 

Buchaill Dana

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I suspect Germany would fight like a cat in a bag to avoid any notion of mutuality in European debt. Furthermore the American Fed would be on the phone to get that idea nixed straight away.
Fock em. We have a centalised currency to their benefit, a centralised interest rate to their benefit and a European Central Bank to their benefit. Why not centralised debt instruments linked to ECB credit rating?
 

Lumpy Talbot

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No
Fock em. We have a centalised currency to their benefit, a centralised interest rate to their benefit and a European Central Bank to their benefit. Why not centralised debt instruments linked to ECB credit rating?
Oh absolutely. It would make sense and should appeal to the EU project constituency in a lot of ways. I just don't see Germany and France getting into a position where they become signatory to the PIIG nations' national debt by way of an emergency instrument and without stringent conditions and control over spending in return.

The Americans won't back Germany and France doing any such thing either. You'll recall Geithner's dismissal of any idea of a bailout at EU level on our nationalised bank debt.
 


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