Wall Street Journal
September 9, 2011
The world is short of secure destinations for investment funds, as shown by Switzerland's dramatic efforts this week to deter the floods of capital entering the Alpine safe haven.
Here's a solution: euro-zone bonds, debt instruments issued collectively by euro-zone nations that could offer for the first time a real alternative to the U.S. Treasury market. They have another advantage: They could also save the euro zone.
The U.S. Treasury market is still the destination of necessity for the world's biggest investors. For central banks and others that require huge, liquid bond markets, there is no alternative to Uncle Sam. As a consequence, the U.S. government can borrow at interest rates lower than any major European economy apart from Germany, despite a recent debt downgrading, giant budget deficits and easy money.
The combined size of the euro zone's bond markets is large enough to offer serious competition to the U.S. Total marketable euro-zone government debt is about $8.6 trillion dollars, compared with more than $9.5 trillion in U.S. Treasury paper held by the public.
But an apparent market opportunity isn't why the proposal is moving up the European Union agenda. A growing band of people think it may be the only way to stop the currency union from breaking apart in the face of a deepening and widening debt crisis.
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