Eurozone leaders will meet for an emergency summit on Thursday under growing pressure from markets to clarify their message after months of dithering and divergent signals. Some observers now view fiscal union and a common euro-bond (or “e-bond”) as the only answer.
“It is an option I favour,” said Gilmore of the e-bond idea. “It is one of a series of options that has to be looked at,” he said to Irish state radio RTE.
An e-bond would be a radical step towards fiscal integration because it would see stronger nations explicitly underwrite debt issued in common with bankrupt peripheral countries.
Gilmore’s comments came after an interview in which ECB president Jean-Claude Trichet ruled out bending the Bank’s collateral rules in order to keep the liquidity tap running for Eurozone banks.
“If a country defaults, we will no longer be able to accept its defaulted government bonds as normal eligible collateral,” he said. Greek banks rely upon using Athens’ debt as collateral for their funding.
Trichet added that “the governments” would instead have to work out an alternative source of collateral, although it is not clear what form that could take.