Eurobonds – the Coming Federalization of Europe

$ Euro sinking

Europe will move to Eurobonds for now Brussels gets it – if the euro fails, they lose their jobs in Brussels. Individual government bond issues have prevented the Euro from becoming a major currency and it now trails even the Chinese Yuan in trade. Nonetheless, some are trying to argue such as the German bank co-chief Anshu Jain that he naively claims that maintaining separate debts for each country is strangely an important disciplining effect for debt reduction. The problem with his view – government do not pay back debt and that includes Germany as is the case with the USA. Where is the discipline?

The Eurobonds are coming when the ECM turns down from 2015.75 and this will be seen as the great solution. Of course the will get this wrong as always. The two arguments pass by the entire problem. All debt should have been consolidated from day one. The failure to do that has destroyed the European economy. However, consolidating the debt now will also not work – too little too late.

The only way to solve the crisis is to (1) consolidate all debt of member states, but (2) moving forward, all member states then issue new debt from there on out. That will subject them to discipline as the interest rates will vary. However, even this ploy may not save the Euro because the confidence has been undermined long-term. From here on out, the debt crisis in Europe will only get worse.

We will still see the global Sovereign Debt Crisis accelerate for there is NO INTENTION to repay anything to anyone. Governments will have to stop the borrowing and downsize. That is what we will see on the horizon. But they will kick and scream all the way to their grave.