David Shor ran some numbers on the idea of consolidating all outstanding Eurozone sovereign debt, and the results confirm that such a consolidation would be manageable and produce substantial net savings:
Total Eurozone Public debt is 84% of Eurozone GDP, while France’s Public debt is 83.5% of GDP. So assuming that Eurozone-wide bonds would pay the same rates, a Yglesias-style consolidation of Eurozone Sovereign debt would save about 131 billion dollars a year in debt servicing costs, or about 1% of GDP. Net benefit from an assumption of national debt by a Eurozone-wide authority as a percentage of national GDP. This is assuming all debt is held in 10 year notes, which is very inaccurate, but still useful for the purposes of the post.
That’s pretty back of the envelop, but it shows you the basic shape of things. This idea is a big winner for southern Europe, and since Italy is such a big share of total Eurozone debt, it winds up being a big winner for the Eurozone as a whole. What’s more, though it does indicate that there would be losses to Germany relative to the status quo, the status quo is based on the unrealistic assumption that these Greek/Irish/Portugese debts can be paid off in full. Realistically, it seems that there has to be some form of default or some form of bailout. The extreme bailout scenario of complete EU debt assumption and debt consolidation seems to me to be the most beneficial form of bailout.
Obviously, this isn’t going to happen. The politics aren’t even close to being there.