Eurobonds: EU Reveals Controversial Debt Solution



Barroso calls for "still closer cooperation" within eurozone

Barroso calls for “still closer cooperation” within eurozone

Jose Manuel Barroso, president of the European Commission (EC), has recently revealed plans for eurobonds despite opposition from the eurozone’s largest economy.

Eurobonds are set to be ‘government’ bonds backed by all 17 countries in the eurozone in an effort to solve the spiralling debt crisis.

German problems

Barroso announced that the EC will be launching a consultation to see if all countries in the bloc can issue the bonds to raise money.

However, the time comes as Italy and Spain, two major eurozone economies, have seen their fundraising costs soar to unmanageable levels.

In addition, Germany sold just 3.6 billion euros (£3 billion) in government bonds at auction on Wednesday, though there were 6 billion euros on offer.

The sharp drop of the euro following the Germany’s poor showing at bond auction has made many analysts concerned that the eurozone crisis is having disastrous effects on Germany.

Though it is the largest economy in Europe and traditionally seen as a powerhouse, many market strategists are beginning to admit that Germany may not be as safe as many have perceived.

However, chief analyst for Danske Bank Jens Peter Sorensen said that Germany’s poor showing at the bond auction is more a reflection of “the deep mistrust to the euro project” rather than a mistrust for German government bonds.

Closer co-operation

In his speech announcing the eurobonds, called ‘stability bonds,’ Barroso said that the eurozone needs “still closer co-operation in the euro area.” Issuing the bonds means that the EU would investigate and control the budgets of eurozone countries much more than is currently done, which would be necessary to avoid another bailout repeat.

Barroso said that the stability bonds are a way to show “public opinion and international investors that we are serious about stronger governance in the euro area.” He said that eurobonds will be a concrete example that the eurozone is coming together in serious ways to create stability throughout the single-currency bloc.

However, he said that the stability bonds will not solve the eurozone’s immediate problems, something that German Finance Minister Wolfgang Schaeuble agrees with.

Schaeuble, who staunchly opposes the introduction of 17-country-backed eurobonds on the grounds that Germany will shoulder most of the burden, says that they will reduce the pressure on troubled economies to cut their debt. He said the issue is a matter of “financial discipline in European countries,” and the eurobonds will make that discipline unnecessary for troubled countries.

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