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Wednesday, November 23, 2011

Eurobonds or ECB… Either way Germany has to pay the bill

As we argued in a recent papers which looked at the short term options for the eurozone, the option of risk pooling via Eurobonds, or the option of allowing the ECB to become the lender of last resort, both pretty much come down to German taxpayers underwriting the whole party.

Today’s Bild takes a similar, if slightly more succinct line in a piece entitled: “Britain, America, the EU... they all want our cash”. They look at both proposals and argue that Eurobonds, proposed by the EU Commission and supported by several member states, and dismiss it out of hand arguing that:
“Everyone guarantees everyone else’s debt but at the end only one is left to pay the bill: Germany!”
The ECB option, which would involve the ECB purchasing government bonds from member states at artificially low interest rates, is advocated among others by David Cameron and Barack Obama. Bild mocks the political independence of the Bank of England and the Federal Reserve, claiming that “in their countries, central banks listen to government command”, and that the price for this is enormous inflation risk because it involves the central bank printing money virtually unabated, and points out that in the UK inflation is currently at around 5%. The French are likewise in favour of the ECB taking a more active role in tackling the debt crisis with Prime Minister Francois Fillon arguing:
"We need to equip the Euro-zone with an instrument to defend our currency… there must be a certain evolution of the role of the central bank”.
Bild sums this up by claiming:
“Put plainly: The French also want to go with the big money solution – and ultimately in Europe this can only ever mean German money”.
As we have pointed out before, for well established historical reasons the German commitment to sound money and price stability is deeply rooted. When the country's leading tabloid leads with a huge piece on the independence of a central bank on its second page - forget celebrity gossip and the X factor - you start to appreciate just how deeply rooted this belief is.


Philip said...

I am afraid that most people leave the German tax payer out of the equation. He is clearly not in the mood to foot the bill for the Southerners and increasingly comes to terms with the idea to bite the bullet and leave the Euro. With all dire consequences as to this will also be attached a price tag. However, the first losses are always the smallest and rather a calamitous end than endless calamity with the Euro

Rollo said...

Germany has not got any money. Their debt is 80% of GDP, much more than ours. And they are having difficulty selling their bunds.
They mock us for QE, saying we are devaluing to stay in the game. But the Germans have a much cleverer game: they mix the Dmark in with the drachma, peseta, escudo, Ffranc, lire and so on which keeps the euro nice and weak: then they exploit the weaker countries, which the euro is destroying.
We will find this policy does more damage than Hitler ever did.

sustainable-spain said...

Germany has to pay what??? You must be kidding. The German generosity across southern Europe has just been a very profitable business for the German international corporations. The Germans in general are as charitable as everybody else in this nonsense called European Union: in exchange of what?... So any presumable German help to “rescue” the European periphery is just a step to eventually save themselves. Wait and see…