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Common Eurozone Bond Idea To Be Discussed

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http://www.bbc.co.uk/news/business-11924853

Eurozone finance ministers are to discuss creating a common government bond to help reduce borrowing costs.

The idea is one of several topics on the agenda at Monday evening's meeting, called to discuss Europe's debt crisis.

Supporters of "E-bonds" argue they would help protect eurozone countries from speculation and attract new capital flows into the region.

But Germany is thought to be sceptical of idea, which it believes could only work with closer European integration.

Key proponents of E-bonds are Jean-Claude Juncker, Luxembourg's prime minister and chairman of the eurozone finance ministers group, and Giulio Tremonti, Italy's finance minister.

They set out their argument in an article in the Financial Times, calling for the creation of a European Debt Agency (EDA) to issue what they say would be secure, highly-rated bonds.

They wrote: "The European Council could move as early as this month to create such an agency, with a mandate gradually to reach an amount of outstanding paper equivalent to 40% of the gross domestic product of the European Union and of each member state.

"We believe this proposal provides a strong, credible and timely response to the ongoing sovereign debt crisis," the pair wrote.

Genius.

Anything to keep the ponzi running.

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This wont happen. It is just an attempt to load debt onto Germany, but Germany is smart enough to realise this.

So it wont happen.

What if the alternative is forking out for bailouts in Portugal, Spain, Belgium etc. Not something the Germans have been very keen on.

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Makes sense.

Enables them to devalue the piggy debt in an orderly manner without spooking the horses.

Germany's going to have to swallow its losses one way or another. They'll just want to extract maximum political advantage. i.e. reduce piggy govts. to protectorates.

Sorted.

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What if the alternative is forking out for bailouts in Portugal, Spain, Belgium etc. Not something the Germans have been very keen on.

That is a lot of forking. You seem to suggest that Germany is facing a 'Forking Hell'.

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http://ftalphaville.ft.com/blog/2010/12/06/427611/eurobonds-are-among-us-again/

Time is of the essence. The European Council could move as early as this month to create [a post-EFSF European Debt Agency], with a mandate gradually to reach an amount of outstanding paper equivalent to 40 per cent of the gross domestic product of the European Union and of each member state…
First, the EDA should finance up to 50 per cent of issuances by EU members, to create a deep and liquid market. In exceptional circumstances, for member states whose access to debt markets is impaired, up to 100 per cent could be financed in this way.
Second, the EDA should offer a switch between E-bonds and existing national bonds.
The conversion rate would be at par but the switch would be made through a discount option, where the discount is likely to be higher the more a bond is undergoing market stress. Knowing in advance the evolution of such spreads, member states would have a strong incentive to reduce their deficits…
Which is why we’re a little bit puzzled to see German officials attacking the very mention of eurobonds on Monday. The objection seems clear: Germany would presumably backstop the EDA and E-bond issuance on the precedent of the EFSF, watching bund yields march higher on the contingent credit risk that’s thereby created. It’s a risk that’s already being priced in, to be sure — and perhaps means 100 basis points either way in ten-year German yields, according to RBS rate strategists on Monday.

On the other hand, what are the risks to the German yield curve of the destruction of around half of German banks’ capital if the eurozone was broken up? Or if (say) the European Financial Stability Facility’s lending capacity becomes so debased that only a direct fiscal transfer will satisfy markets, should it come to a Spanish or Italian crisis?

In fact — the market belatedly repriced the risk of the peripherals being in debt but unable to devalue inside the currency union following the Greek crisis. You could say that German credit is also now merely being realistically reassessed in terms of eurozone effects for the first time.

So the crisis is actually about the least-worst way for Germany to bear this risk, by this late stage. Hence why it might pay for German officials to take another look at eurobonds after all — especially given that the alternative they’ve already created (as above) is looking mighty unstable.

Indeedy.

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  • 311 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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