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Tuesday, May 22, 2012


After the G8 summit, French President François Hollande claimed that he would "not be alone" in proposing Eurobonds at tomorrow's informal dinner of EU leaders in Brussels. But, who, exactly, are his bed fellows?

Italian Prime Minister Mario Monti is undoubtedly a supporter of Eurobonds, along with former Economy Minister Giulio Tremonti. However, Monti has also repeatedly stressed that Eurobonds should not be "an excuse to relax budget discipline". From the US, Monti said that, for the moment, he would seek a mere agreement on the "evolution towards Eurobonds." (whatever that means).

Monti is also likely to prioritise his own proposal: exempting public spending on certain "strategic" sectors from the EU's deficit and debt rules - a proposal which no doubt will rub Angela Merkel completely the wrong way. Monti is unlikely add fuel to the fire by also insisting on Eurobonds.

What about Spain, a perceived beneficiary of debt pooling? Well, Prime Minister Mariano Rajoy yesterday told reporters that, at this stage, the priorities for his government are "fiscal discipline, structural reforms and financial stability" - not Eurobonds. He added,
The most important thing is to take decisions that can be enacted in 24 hours. We can't enter debates [about the creation of Eurobonds] that can last for years. 
Quite right Rajoy. The Spanish PM will not want to take on Merkel over the proposal either - his main concern is the future of Spain's banking sector. As speculation mounts that Spain may be forced to tap the eurozone's bailout funds to deal with its banks, Don Mariano wants Germany on side.

Even the European Commission itself is saying that the time is not yet ripe for Eurobonds, instead pushing for the less controversial 'project bonds'. In an interview with the Wall Street Journal over the weekend, Commission President José Manuel Barroso said,
We think that it's only when there is an increased level of convergence and discipline that Eurobonds can appear as something credible. [Eurobonds should not be seen as] an invitation for irresponsible fiscal behavior or having some kind of moral hazard.
So who else? The Austrians, whose Finance Minister Maria Fekter said in an interview,
Growth financed by debt? Those are the recipes from the day before yesterday. The arguments that are put forward by France's new president François Hollande are nonsense and got us into this whole mess in the first place.
Or the prudent Finns? Hardly.

Well, there's one: David Cameron.

At least this time around, Cameron will not have a French President calling him an "obstinate kid" and asking him to stop interfering in eurozone politics.   


Denis Cooper said...

As I've argued before, the bonds issued by the EFSF are already "eurozone bonds" if not "eurobonds" involving all the EU member states.

And as I've also argued before, the EFSF and its bonds are illegal under the EU treaties.

Firstly, there is no legal base in the EU treaties for the eurozone states to go off and set up anything like the EFSF, or for any use to be made of EU institutions in that connection, and therefore it has been established in defiance of the priniciple of conferral enshrined in the treaties, and in particular Article 13(2) TEU.

It's being falsely argued in some europhile quarters that the EFSF is based upon Article 122(2) TFEU, eg here:


"... it is far from clear that the article 136 TFEU amendment is really necessary in order to set up the ESM ... the ESM’s temporary predecessor, the EFSF, was successfully set up on the basis of another treaty article."

But that is not true: it's perfectly clear from reading the original Decisions of May 9th 2010:


that the EFSM was established through a Council Regulation based upon an abuse of Article 122(2) TFEU, but there was no identifiable legal basis at all for the EFSF.

Secondly, the structure of over-guarantees for the EFSF bonds clearly breaches Article 125 TFEU.

Of course provided investors trust that the eurozone national governments will keep their word and make sure that all payments on the EFSF bonds are made in full and on time then it doesn't really matter whether what the national governments are doing is legal or illegal under the EU treaties, and maybe Cameron and others are thinking along the same lines for other varieties of eurobonds.

Denis Cooper said...


"Meanwhile, his predecessor at the ECB, Jürgen Stark, has said countries bailed out by the EU and International Monetary Fund should have been asked to leave the euro zone before being assisted.

“If a country mismanaged itself and has to perform a correction . . then outside the euro area,” he said. “The currency union has already taken a hit. A severe cut at the start of the crisis would have been better.” Mr Stark said it was a “mistake” to allow the IMF help countries inside the EU. The EFSF bailout mechanism also sent a wrong signal, he said.

“With that we buried the Maastricht Treaty, the legal basis for currency union,” he said."

Well, what does he know, when Dr Gavin Barrett says that it's all hunky-dory and there isn't really any need to have the amendment to Article 136 TFEU?

Rik said...

My primary reaction is that Monti and Rajoy know that this will most likely only waist time and if something comes out it most likely will take too long.
It is simply counter productive to start the discussion again. And will anger Merkel (probably more than Cameron).

Like a lot of economists' solutions. Solving a financial-economic problem by creating a political one is not really a good idea. And a full fiscal union or a political union is simply not acceptable in most countries. May be in the debtor states as long they profit from it, but also not longer term (as we see in Greece). But Merkel has made that very unattreactive anyway so also support South will not be massive.
Solutions have to be found in the margins applicable and these proposals are clearly outside those margins.

@Denis Cooper
Fully agree that the legal foundation is dodgy at best, but the problem is these rules cannot be properly enforced (as the enforces are playing them) and not be properly tested in Court. And if tested likely deferred so long that all the harm has been done already and the measures de facto cannot be turned back.
Which opens again the question of 'rule of law?'.

Rik said...

Another issue.
Cameron has roughly zero influence, however every time he gets himself caught up in the discussion.
We also know that the closer you get to the problem the more money it will likely cost.

So imho by starting this discussion again simply there will be:
- no proceeds for the UK at best (at best as he likely will irritate some people);
- complicates a solution as there is a totally unrealistic alternative to be discussed as well; and
- more important, he most likely increases the chance he will be asked to contribute.

David Barneby said...

There must be a dearth of leadership material in the British conservative party , for them to have chosen David Cameron . Does he say anything right or do anything right , NO , a total yesman to the US , EU , you name it .
To fathom his thinking is impossible , just to say the right thing to go along with the crowd.
Are we to suppose that he has interests in the banking and financial world , or is that the only industry that Britain has .
Does he know that banking and financial sevices in London are without regulation . American banks use London for fraudulent deals , Hypothecating is without limit , whereas in the US is limited to 140% . If you don't know what that is , look it up on the net .
Cameron and his cabinet speak with forked tongues ; there only interest in saving the Eurozone is the impact its collapse would have on the UK .
Cameron should know that taking Britain one step towards a political union , the people would slaughter him .
If Cameron hasn't anything constructive to say , he should keep his mouth shut .