Bifurcated Euro Begins As AAA-Only 'Elite'-Bond Issuance Considered

Tyler Durden's picture

As the hopes of an IMF bazooka fades, Market News is reporting that the ever-ready-to-print-a-story European newspaper Die Welt says Germany and the other 5 AAA-rated nations of Europe are discussing jointly issuing 'Elite' bonds. We assume the borrowings could be used to fund the less-well-rated nations and avoid a true Euro-bond joint-and-several issuance which Merkel and other have been so opposed to. For now, it is clear that the 'Have's and the 'Have-Not's are becoming increasingly divided and this - much like our earlier discussion of the recap section of the EFSF draft - seems to be further from a fiscally united Europe and any inevitable endgame. We wonder what will happen when Austria gets downgraded? It certainly seems that the much-ridiculed ratings agencies are now playing an even more important role and we can only assume that the recent disappintments in the better-rated sovereign auctions were 'transient' and 'temporary'.

It is increasingly clear that Europe is bifurcating in many ways - High-grade and everyone else - and it appears the preparation is beginning.

 

From Market News:

 

FRANKFURT (MNI) – The German government and five other Eurozone member states with a triple A credit rating are considering issuing bonds together, German daily Die Welt reported Monday, citing unnamed highly placed EU officials.

 

The paper said that the money raised by the bonds would finance the debts not only of the six AAA-rated countries — Germany, France, Finland, the Netherlands, Luxembourg and Austria — but also help provide financial assistance, under strict conditions, for Italy and Spain.

 

The goal of the new bonds would be to stabilize the situation of the AAA countries and “erect a credible firewall that calms the financial markets,” the paper said.

 

The German Finance Agency would play a major role in the sale of the bonds, which would carry an interest rate of 2% to 2.5%, the paper said.

 

Since the bonds would not be “Eurobonds” jointly issued by all 17 Eurozone member states, they are being called “Elite bonds” or “Triple A bonds” for working purposes, Die Welt reported.

 

 

One more thought...Is Germany learning from its Chinese trade partners and looking to take on the vendor-financing mercantilist position among its European partners - if so, this would hardly help the imbalances that are among the causes of the problems we now stand in.