Only yesterday, La Stampa (Turin’s daily newspaper) reported that Brussels is contemplating three possibilities regarding Eurobonds. The paper is quoting from the so-called Green Book on the Feasibility of Stability Bonds:
(1) complete transfer of national treasury bonds to a European agency with joint guarantees (EU and member states)
(3) Keep national sovereign bonds but have them deposited and guaranteed by some EU agency.
My reaction? It is good to see signs of intellectual life coming from Brussels. Alas, the proposals, while in the right direction, are similarly flawed in one particular respect: They require Treaty changes that will never come on stream before the eurozone has collapsed. They insist on the notion of eurobonds backed by member-states (jointly and severally guaranteed by national treasuries); a notion that is not only in contravention of the Lisbon Treaty but also financially problematic as the interest rates these bonds will incur will be some weighted average of Germany and the periphery (rates, that is, which are too high for Germany and not low enough for the periphery). If only Brussels could take one more subtle, yet crucial, step in the direction of the Modest Proposal, their plan would acquire both credibility and persuasive powers. Which step? The recommendation that the blue bonds are issued (or backed) by the ECB. In its own name. Without German guarantees.
Lastly, I very much fear that Mr Baroso’s Commission is putting these ideas about in a game of chess with Berlin and Paris; in order to assert his authority; as a protest at the effective sidelining of the Commission. If so, the Green Book’s eurobond proposals will be blasted out of the water by a German government determined to take matters in its own hands and to, in this sense, push Brussels into the margins of EU decision making.