Eurobonds Are A Crazy Idea – They Caused The Euro Crisis

The reason Greece has the problems it has, is that investors were silly enough to believe just becuase Greece was in the Euro, Greek debt should be priced the same as German debt.

Now people have realised this was a mistake Barroso wants to come in with his Eurobonds which will allow Greece to borrow at the same rates as Germany. Repeating the mistake….

Einstein said the definition of insanity is doing the same thing over and over and expecting a different result

Barroso is banging the drum for Eurobands as the saviour of the Euro currency.

His rhetoric exposes his incompetence.

The purpose of the Eurobonds is to allow smaller/weaker Eruropean countries to borrow at the same interest rates as the larger countries because the risk will be offset amongst a group of countries instead of just one.

Because the borrowing risk is spread over a number of countries it is supposed to be more attracitve to investors as the whole group of countries backing the Eurobond would have to default which is more unlikely that just one country defaulting.

This is exactly what caused the Euro crisis. ie weaker countries like Greece being able to borrow at intereste rates similar to that of Germany even though the Greek economy was in nowhere near as risk free as Germany

This led Greece to borrowing more than what would have normally been possible which has led us to the Euro crisis today.

I can only assume this is a move by Barroso to force Germany into an arrangement where it is obligated to bail out weaker countries rather than the situation now where Germany can call the shots on the bailout packages.

Just as markets are realising that they were wrong to price Greek debt the same as German debt simply because both countries were in the Euro, Barrosso and the EU seem to be trying to cause the same problem again.

To summarise, if European economies operate their finances differently then their debt should be priced differently, Barroso trying to price Greek debt the same as German debt through a eurobond shows that he or his advisors have taken complete leave of their senses.

Again Merkel seems to be the only sane person in the room

BERLIN (AP) — German Chancellor Angela Merkel rejected a new push by the European Commission for bonds issued jointly by the 17 euro nations, saying Tuesday they wouldn’t resolve the debt crisis and now is the wrong time to discuss them.

She appeared to be joined in her resistance to immediate talk of so-called “eurobonds” by eurozone chief Jean-Claude Juncker and Herman Van Rompuy, president of the European Council, which is made up of the 27 European Union heads of government.

Van Rompuy’s comments appeared to show a difference in emphasis between himself and Jose Manuel Barroso — the president of the Commission, the EU’s executive branch.

Barroso is expected to call strongly on Wednesday for eurobonds as an effective way to combat the debt crisis. But Van Rompuy said such sharing of public debt could be imagined only as the end result of a long process such as that which created the euro currency itself.

Merkel dug in on her resistance to calls for an instant solution to the crisis hours after the Commission’s top economic official tried to sell Germany on Brussels’ drive for eurobonds — which he now titles “stability bonds.”

 

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