Only Eurobonds can save us

On 23 November, the bite of the European sovereign debt crisis was felt in Germany. No-one can deny that investor flight from the low yields offered by 10-year bunds (Germany only managed to sell 62% of the total issue) has sounded a warning for Angela Merkel. Contagion is gaining ground and it is increasingly obvious that if we are to overcome the crisis, all the parties involved will have to row at the same time and in the same direction.

Events have accelerated to the point that they are inevitably leading to the mutualisation of eurozone member debt, the only measure capable of withstanding market stresses. The characteristics and form of member participation will certainly have to be discussed, but one thing is certain: if the EU does not devote all of its efforts to launching eurobonds, then we will have to have a rethink on the euro.

Merkel, for now, will hear no talk of it. Yesterday, she expressed herself categorically: “it is inappropriate that the European Commission should focus on Eurobonds, because it gives the impression that the debt burden can be shared.”

Sanctions on recalcitrant countries

From a rational point of view, she is probably right. Under present conditions, mutualising debt would be like rewarding defaulting countries and sanctioning those that have fulfilled their duties. The issue is whether the eurozone can hold out much longer in such conditions.

Let’s remember that hardly two years ago, the debt crisis was confined to Greece, whose problems were attributed to a spendthrift government. Today we have three countries that have have been bailed out, two others on the brink, and the rest experiencing difficulties with their debt.

This includes core Eurozone states that are not doing well: France has had to introduce spending cuts to keep its AAA rating, while Germany is struggling to attract investors with bonds that offer an interest rate of less than 2%. Faced with such a situation, no one can predict what will happen in three months time.

On 23 November, the Commission presented itsproject for the issue of Stability Bonds, which adroitly included measures for increasing Brussels’ control over the finances of member states in difficulty. Commission President José Manuel Barroso and the Commissioner for Economic and Monetary Affairs, Olli Rehn, want Brussels to be able to review and validate member state budgets before they are approved by national parliaments. They also propose that the Commission be able to impose sanctions on recalcitrant countries.

We have no other choice

The goal of this initiative is to put the clamps on those governments that fail to toe the line, but also to create a favourable climate for Eurobonds in core Eurozone countries and the European Central Bank, neither of which view such a scheme positively.

Many commentators have argued that the EU does not have sufficient time to allow for measures already undertaken to bear fruit, or for member states to resolve the debt crisis. It is in this context that pressure is building on Angela Merkel. Let’s hope that she heard the message investors sent on 23 November.

More Europe is the only way. We must demand that European leaders take real steps in this direction. Investors – and citizens – expect a rapid commitment. The European Council meeting on 9 December should adopt specific decisions in this regard. It is a crucially important meeting that comes at a time when Spain is between two governments. And in this context, we should applaud the decision of outgoing Prime Minister José Luis Rodríguez Zapatero and his successor Mariano Rajoy to put forward Spain’s position together.

We have no other choice but to set our hopes on a Eurobond scheme which at least has the merit of already featuring on the official agenda for the upcoming European Council meeting.