Eurobonds Ruled Out; Eurobong Still In Play

Not even minutes after we finished ridiculing Springer/Die Welt's attempt at propaganda spin whereby eurobonds were actually presented as not only good for Germany, but about to be "instituted" (and fully expected the immediate response to be one of refutation via official channels), here comes the FT with the official denial: "Germany and France are ruling out common eurozone bonds to solve the bloc’s current debt crisis, in spite of renewed pressure ahead of a meeting of chancellor Angela Merkel and president Nicholas Sarkozy on Tuesday. Wolfgang Schäuble, German finance minister, made clear in an interview with Der Spiegel, that Berlin remains opposed to such a policy. “I rule out eurobonds for as long as member states conduct their own financial policies and we need different rates of interest in order that there are possible incentives and sanctions to enforce fiscal solidity,” he said. So, uh, Die Welt's prognostication that "The federal government is now willing, if necessary, to accept a Eurobond transfer union" is about, oh, 100% wrong? Oops. As for those expecting an announcement of a eurobond on Tuesday following the latest round of "emergency" Merkel-Sarkozy, we suggest you put down the Eurobong: "Senior French officials also played down speculation that any firm announcement on jointly issued bonds would be issued after meetings when Ms Merkel comes to Paris on Tuesday. “Eurobonds would require a much more determined integration of budgetary policy,” one said. “We do not have that today. It could be a long-term project, but you cannot have eurobonds and at the same time national economic and budgetary policies.” Translation: "there is this thing called elections coming, and some of us career politicians, who have no idea how to do anything actually valuable for society, and still have not plundered enough in the form of bribers, pardon, lobby money, are not insane enough to propose that German and France foot the bill for the entire European bailout." Even though that is precisely what they will do via the EFSF. And we certainly expect yet another round of eurobond rumors the next time the EURUSD tumbles by 200 pips in the span of 10 minutes (which courtesy of the broken FX market as described by Sean Corrigan earlier, is roughly every several hours).

More from the FT:

George Osborne, the UK finance minister, on Thursday said the idea now required “serious consideration”, while billionaire investor George Soros warned on Friday that the euro “could implode” if eurozone leaders failed to accept the principle of mutualising debt.


Yet Ms Merkel and Mr Sarkozy are on Tuesday expected to reiterate the need for greater fiscal and economic co-operation before any European bond can be considered.


Nonetheless they hope to reassure markets by flagging a common determination to implement the measures agreed at the last Eurozone summit on July 21 where members agreed a new round of emergency crisis measures.

As a first step, Paris is hoping to make real progress on proposals to improve the governance of the eurozone.


One official said the idea would be to push forward economic and fiscal integration, but also to improve the “institutional architecture that allows us to take decisions.”


For President Sarkozy, still deeply unpopular in the polls and facing a difficult re-election campaign next year, it will be important to come out of Tuesday’s meeting with concrete progress. Mr Sarkozy has already sought to reassure markets – and his German partners – on France’s determination to get public spending under control after last week demanding that his government come up with new deficit reduction measures by this week. There was speculation at the weekend that Ms Merkel and Mr Sarkozy could even announce some new measures for further fiscal co-operation between their two countries.


But officials close to the German chancellor caution against expecting any major initiative from the talks. They insist that the meeting will focus on proposals for long-term reforms of eurozone governance, and not on short-term measures to calm the markets.

In the meantime, as to what the true endgame is, we go to Reuters, which informs us that 54% of Dutch votes now want Greece and all the PIIGS thrown out of the Eurozone, rather than be rescued.

Recent opinion polls have shown that Dutch taxpayers are increasingly disenchanted with the enormous financial cost of rescuing euro zone members, views which could well influence parliamentary debates this week and affect parliament's support for such bailouts at a key vote due in October at the earliest.


The poll followed another week of financial market turmoil, in which France's triple-A credit rating came under scrutiny and the European Central Bank had to step in to buy Italian and Spanish sovereign bonds in a bid to restore stability.


A Maurice De Hond poll published on Sunday showed that 60 percent of those surveyed wanted the Netherlands to stop lending money to other euro zone countries. A week ago, 55 percent said support should not be extended to Spain and Italy if they needed it.

Just under half, or 48 percent, said the euro's negatives outweighed its benefits.


A separate poll, commissioned by Dutch newspaper AD and published on Saturday, found that 48 percent of those questioned wanted out of the euro and a return to using the Dutch guilder.

Naturally, complying with the will of the people, a concept so alien to modern day "democracies", it flies right over everyone's head, would mean that the eurozone would be disbanded yesterday. It would also mean that an entire generation of European apparatchik bureaucrats has been wasted. Which won't happen, because while the status quo in America is defined by the banking interests, in Europe is the various petrified bureaucracies that define the here and now. Not until the MENA revolutions migrate across the Mediterranean do we expect anything notable to occur in Europe. In the meantime, we fully anticipate that Chinabot and the various vacuum tubes, to lift the EUR on increasingly fewer optimistic headlines that have not been recycled already (or if they have, then at least have been out of the robots' view for more than a few nanoseconds: enough time for the latency cycle in ORNAND memory to fully forget what a given memory cell held in it just prior), even despite the admonitions of Citi's William Buiter who claims that the end result of this whole European insolvency exercise will be a far stronger euro (see below).

Good luck with that.

Buiter August 12