Eurobonds - Nationalism Meets Federalism

Via Mark J Grant, Author of Out of the Box,

I quote from the Wall Street Journal, “Germany opposes the issuance of jointly backed European bonds, arguing that they would allow inefficient, highly indebted economies to gain a free ride on the stability and favorable financial conditions secured by the more-disciplined countries. German officials have said that such bonds can be an option only once all euro-zone member states have improved the health of their finances and boosted their competitiveness.” This is the standard line that Germany has been using for some time now; allow me to translate this for you…”We don’t want to pay.” It is as simple as that so you can ignore the rest of the rhetoric.
France at the next EU summit is going to push for Eurobonds and Germany will resist in what may be a quite unpleasant stand-off. From Germany’s perspective I can easily understand their feelings about this matter because the consequences of Eurobonds are very negative for them. Germany is responsible for about 27% of the obligations at the EU and almost 20% of the liabilities of the ECB. Eurobonds are quite clearly a “transfer union” where Germany is the primary source of funding then for the rest of Europe and there are very significant consequences if this plan is pushed through.
Over a period of time, if enacted and used as the primary funding source for the European Union, Eurobonds will average the cost of funding for the entire construct so that Germany, the Netherlands, Finland et al. will pay a much higher cost for funding while the periphery countries lower their costs of financing. It will not just be funding that is averaged however and this is where the consequences become acute. The ratings of all of the countries in Europe will also get averaged so that you will eventually have an “A” rating for Europe and for the Eurozone institutions such as the European Investment Bank. Also you will average the standard of living for Europe so that the German economy will decline to the median while Portugal, Spain and Italy et al rise to the average. If Eurobonds are ever enacted I would suggest selling any/all of the “AAA” countries and buying the periphery ones as the correct play in the intermediate term. In fact, Eurobonds are the crux where Federalism comes head to head with Nationalism and where the rhetoric gives way to actualization. I would also surmise that if, somehow, Germany would agree to this scheme that Ms. Merkel will be forced from the Chancellery and in short order so that she is very quickly going to be stuck in between the rock and the hard place where what she says is going to have to measure up to what she is going to do and all of the excuses that we may get in the Press will not erase the liabilities that she is about to face.
A few other pertinent issues to consider along with Eurobonds:

  • How do you know that when you wake up one morning that all of your stuff has not been stolen and replaced by exact duplicates.
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  • I almost had a psychic girlfriend but she walked out on me before we met.
  • Ok, if you are so smart; what's the speed of dark?
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  • If everything seems to be going well, you have obviously overlooked something.
  • Depression is merely anger without enthusiasm.
  • What happens if you get scared half to death twice?
  • If at first you don't succeed, destroy all evidence that you tried.
  • A conclusion is the place where you got tired of thinking.
  • Experience is something you don't get until just after you need it.
  • The problem with the gene pool is that there is no lifeguard.
  • The sooner you fall behind, the more time you'll have to catch up.
  • Everyone has a photographic memory, some just don't have film.
  • We all intend to live forever - so far, so good.