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Are Eurobonds In Fact Unthinkable?

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"Are Eurobonds In Fact Unthinkable?"

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Peter Bofinger, not history's greatest monster.

The conventional wisdom in the United States is that fiscal integration of the Eurozone via the introduction of Eurobonds is politically unthinkable, especially in Germany. So I was somewhat surprised to see that the Social Democratic Party’s coverage of the deal is a news analysis from economist Peter Bofinger, which is teased with “Er plädiert noch mal für Eurobonds und eine integrierte Bankenaufsicht.” My understanding is that means “he pleaded against for Eurobonds and integrated bank supervision.” Here’s Google Translate trying to explain his ideas:

I plead for my model “Euro 20″: A financing would generally made on a common treasury, over Eurobonds. Countries with high debt, since I would be 60 percent debt and would have more to say, the budget in advance by the European Parliament can approve. It would have an integrated banking supervision instead of this totally ineffective European Council give for systemic risk. Three-quarters of the problems have arisen due to poor banking supervision and not due to insufficient fiscal discipline! For me, this would include that one – if one has such a system – the possibility of getting “out enforce the” one country, if it is fundamentally in fiscal policy fails to comply with the requirements.

And, indeed, here speaking to Bloomberg he accentuates the point:

Merkel, who calls the single currency a “work of peace” and part of Europe’s “uniting idea,” is the key holdout on so- called euro bonds. With leaders meeting in Brussels today, her stance may eventually weaken amid signs the heart of Europe is becoming infected by the 21-month debt crisis as yields on Spanish and Italian 10-year bonds reach euro-era records.

“Once they look into the abyss of a major speculative attack on Italy,” Merkel will have to embrace euro bonds, Peter Bofinger, a member of the chancellor’s Council of Economic Advisers, said in a telephone interview. “That would be the turning point. There needs to be a joint guarantee for all outstanding debt.”

Only Bofinger, as I understand it, isn’t actually a Merkel advisor. What’s happening is that Germany has a five-member non-partisan council of economic experts and Bofinger is the most left-wing of the group. But his views are the views that the leading opposition party is choosing to highlight at a moment when it seems like a red-green coalition could easily beat Merkel if the election were held today. The Green Party, for the record, also supports Eurobonds. So it at least seems to me that the problem with Eurozone fiscal integration isn’t exactly that “Germans” don’t want it as much as it is that the current incumbent governing coalition in Germany doesn’t it want it. Now whether a hypothetical Red-Green government would actually go through with this idea is another question, but it’s at least what they (correctly) say ought to be done.

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