HAS THE TIME FOR EURO BONDS ARRIVED?
The buzz phrase of the moment is “euro bonds”. The bonds would see debt from troubled nation states such as Greece and Portugal pooled across all Eurozone members. Senior German government officials have repeatedly denounced the plan, yet suggestions have leaked that the bonds are secretly being considered in the case of an “emergency” threat to the euro’s existence. Italian politicians, such as economy minister Giulio Tremonti, have called for the issuance of bonds in recent days. “Well they would say that,” laughed Andrew Lilico of Europe Economics yesterday, “but it’s clear that this isn’t where things are going. Germany doesn’t mind transfers, but they’re against debt pooling.”
CAN THEY KEEP KICKING THE CAN ALONG THE ROAD?
When finance ministers from across the Eurozone agreed to beef up the €440bn fund in July, they hoped it would provide enough stability to contain problems in debt-burdened countries. Yet weeks later, concerns escalated to such a degree that the ECB felt obliged to step into the void. The EFSF can only kick in once member states’ parliaments have ratified the increase in funds – and many parliaments, including Germany’s, are still on their summer holidays. Even if the EFSF is ratified by member states, it may prove insufficient to reassure markets, Christian Schulz of Berenberg Bank told City A.M. yesterday. This would leave the ECB to mop up even more debt in the medium to long term.
WILL THE EURO SPLIT?
With the schism between Germany and troubled Mediterranean states threatening to widen, some analysts have suggested that the euro could split into two currencies – with a “core” euro covering France and Germany, as well other stronger members such as the Netherlands. There remains a significant gap in economic performance between northern European countries and those in the south, leading to calls that the two areas require different approaches to monetary policy.
AND WHAT IF NOTHING WORKS?
The Armageddon scenario that nearly all senior Eurozone politicians are striving to avoid: a break up of the single currency just over a dozen years since its inception.