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The eurobond is a trendy topic in discussions concerning the systemic crisis of the EU, yet few are those who have attempted to explain what this “eurobond” actually is. Two distinguished economists Yanis Varoufakis and Stuart Holland have produced a paper titled “A modest proposal for overcoming the euro crisis”, in which they offer an exceptional analysis on the eurobond and on the crisis itself. With respect to the eurobond the paper says the following:
…[T]here is no need for the Eurobonds to count on the debt of EU member states. Net issues of ECB Eurobonds neither imply fiscal transfers nor a buying out of national debt, nor national guarantees. The EIB (European Investment Bank), already double the size of the World Bank, has issued bonds for fifty years without such guarantees. Eurobonds issued by the ECB would, in addition, attract surpluses from the Central Banks of the emerging economies and from Sovereign Wealth Funds eager to achieve a more plural and more secure global reserve currency system.</p>
Moreover the paper adds:
The crisis needs structural proactive change, not reactive responses to exposed sovereign debt. German, Dutch, Finnish and Austrian taxpayers should not be asked to shoulder new loans for insolvent countries. Fiscal transfers should be within the agreed framework of the Structural Funds through the Commission’s ‘own resources’, rather than a response to the sovereign debt crisis. The structural change should be one by which a major share of national debt is transferred to the Union to be held by the ECB as Eurobonds.</p>
And concludes with the following:
Such a ‘tranche transfer’ to ECB Eurobonds should not count on the national debt or member states nor need be guaranteed by them anymore than are EIB bonds. A key parallel, as in the recommendation by one of us of Union Bonds to Jacques Delors, which he included in his White Paper of December 1993, is that US Treasury bonds do not count against the debt of the states of the American Union such as New York State or Vermont, nor are guaranteed by them. Therefore EU Eurobonds need not and should not count on the debt of EU member states, nor be guaranteed by them.</p>
The above remarks shed light to the nature of this “eurobond” that everyone is talking about. The undeniable credibility and impartiality of the European Central Bank are the grounds upon which a powerful and attractive set of bonds can be issued.
This, as mentioned in the paper of the two scholars, should not imply any fiscal transfers, or any other mechanism that can be confused with steps towards a different kind of political union (federation in particular) that European leaders seek to avoid, each for his/her own reasons.
At this point I highly recommend the “Modest Proposal for Overcoming the Euro Crisis“. More insights on the Eurobond shall follow soon.</div>