by Hans-Helmut Kotz, Jan Pieter Krahnen and Christian Leuz
Bloomberg
September 15, 2011
In recent weeks, euro bonds have gained traction in policy circles as the solution to the sovereign-debt crisis.
The proposed debt could be structured in different ways, but in all cases it would imply joint and severally issued obligations by the members of the euro zone and would fundamentally change the fiscal operations of the union.
Given their permanent nature and lasting impact, euro bonds shouldn’t be considered merely as a way to contain the current crisis, but also as a tool to prevent future outbreaks. They would fare poorly in both tasks.
Euro bonds aren’t necessary to contain the crisis: Better, more targeted solutions are available. And they aren’t suitable for achieving institutional reforms, which should be separate from short-term measures, and designed to strengthen the long- term viability and resilience of the euro zone’s economic and political structures.
In this regard, these securities are a bad idea not because they would provide transfers to weaker member states, as is often pointed out, but because the transfers would be neither transparent nor controllable. Indeed, euro bonds would cement Europe’s structural problems.
Any lasting solution must clearly distinguish between illiquidity, insolvency and structural deficiencies, and should address each in a transparent manner, considering the political processes involved. By contrast, the euro bond proposals fail to differentiate between these issues and, as a result, hurt transparency and incentives.
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