An un-makeable eurobond, Part II

In yesterday's FT we had the following letter, responding to the idea of the UK issuing eurobonds - as suggested last week by Chris Giles, a columnist for the paper:

Sir, Chris Giles’ argument that “Britain should bite the bullet and back a eurobond” (Comment, August 25) is thought-provoking but politically and economically flawed. Total eurobond issuance would probably be in the region of £1,000bn-£2,000bn a year, depending on the proportion of national issuance retained – a £34bn UK share as suggested by Mr Giles would hardly be enough to give Britain substantial influence over the eurozone under his “pay to play” logic. Due to this small share, the UK’s participation would not do much to boost the rating of eurobonds either; nor would it act as an effective inflation deterrent.

In order to have the suggested effects, the UK’s share would have to be far larger, which in turn could increase its debt to gross domestic product and its own borrowing cost, while also exposing the UK to unacceptable exchange rate risks. In addition, even if it can be achieved legally and politically, it is far from clear that the half-hearted mix between eurobonds and national bonds that currently is being discussed will actually end the crisis. Such an arrangement would discourage fiscal discipline while possibly even increasing overall borrowing costs for indebted economies, as the national share of the bonds would face alarmingly high rates if eurobonds were implemented on existing debt.