Search This Site:

Saturday, 26 November 2011

Eurobonds won’t solve crisis either

Financial communities appear to be keener to restore positive market sentiment than to fix the financial problems.  The proposal to issue collectivised eurobonds will only exacerbate Europe’s problems.  The problem is that some countries borrow and spend too much. Eurobonds will not fix spendthrift nations.  Eurobonds will only make it easier for them to continue borrowing, deepening the problem.  Henry Ergas has clearly outlined eurobond difficulties in comparison with Australian borrowing after federation.   That Eurobond solution would mask market signals to spendthrift nations, in the form of high interest rates, that they need to borrow less.   Widespread media has been persistently calling upon Germany to agree to that and other “solutions”, such as European QE (money printing).   None of those proposals would fix the problem, and all have potentially very serious consequences.   Market sentiment can only be restored temporarily at best.

I acknowledge the following sources: “Eurobonds anything but a panacea”, Henry Ergas, p16, The Weekend Australian, Nov 26-27, 2011; and National Leaders Pledge Closer Integration .

For more market commentary join our free live market briefings, or read more, at; or follow my colleague Paul Wise's blog

No comments:

Post a Comment