The European Union budget as a percentage of European GDP is 1.25% and cannot fall into deficit; were it to fall into deficit a tax is levied on member-states proportionate to their national GDP, to cover it. Were there a larger budget and, indeed, a deficit to fund, then eurobonds could make sense.
As it is eurobonds might be issued, say by the European Investment Bank, to fund, say European infrastructure or to lend funds to the PIGS so that they might retire their own high-interest, sovereign debt. But to be European they would have to be covered by a collective and several guarantee from all member-states or, at the very least, those belonging to the eurozone. The eurobond would have to yield a higher interest rate than that of the Bunds, because of guarantors such as Greece, Ireland, Portugal, Spain And even if the EIB borrowed directly, its interest may still have to be higher once it was known that it was just a vehicle for borrowing by the PIGS. What then, is the incentive for Germany and other countries who pay lower interest rates on their sovereign debt to raise funds at a higher interest rate than they need?
These proposals have been around for such a long time - it feels like decades, they were being touted by people like Stuart Holland (remember him? the Labour future once who could not persuade Jacques Delors in, oh, 1992? to take up the notion). I wonder if he is on the eurobonds stump once more. It seems Labour politicians are never dead but merely sleeping until their turn shall come again.
And what are Tremonti and Junckers thinking of in today's FT? A system of internal compensations that would reduce the gain for the high interest payers, would not be automatic and would, therefore, be subject to endless negotiations? What would Germany want in return?
Anyway the real problem is that access to more funds on cheaper terms would encourage spending and therefore aggravate the size of overall sovereign debt.
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For the EU, every crisis is an opportunity. Rather than suggest the obvious, which is an orderly dissolution of the eurozone, they go for further integration.
You pointed out some obvious difficulties, but then again, similar issues were pointed out prior to the introduction of the euro. However, the juggernaut kept rolling....
Alice! You're back. Good.
It's hard to cover everything in a short post, but this is an old, old story. We're back to Delors and his finalite' politique. They would have liked the Euro to be the crowning of European integration but given the failure of ever-closer political union then, the euro became a means to push towards the federal European state.
Even the 'research' papers and briefings, never mind the personnel suddenly reappearing from their academic hidey-holes and sinecures, are from a couple of decades ago, with pathetic update-inserts.
I am not an economist, but surely all these increasingly-ingenious ways to allow countries to go on borrowing (for that is what they are, at root) are just putting off the evil moment which must, eventually, be faced?
Or it is in fact true that we can leave beyond our means for ever?
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