Economist
October 27, 2011
Way back in August there seemed to be some momentum behind the idea of a euro bond. Former EU commissioner Mario Monti, investor George Soros, former German finance minister and prominent member of the opposition Peer Steinbrück, amongst many others, have argued in favour. In the European Parliament in September Jose Manuel Barroso announced that the Commission would be putting forward plans for a euro bond. In our poll, 58% of readers backed them as a solution, and Reuters found 41 out of 59 economists support them and 36 out of 60 analysts expected them to be issued as soon as 2012 or 2013.
Staunch opposition from Angela Merkel and Wolfgang Schäuble, her finance minister, reflecting the mood of the German public, quickly ended excitement. This newspaper wasn't too keen either. We worried that proposals like the think-tank Bruegel’s blue bond/red bond plan (which was the basis of policy proposals from Giulio Tremonti and Jean-Claude Juncker) would create an unworkable two-tier bond market which left the weakest euro-zone countries in no better a position than they are now.
While markets are cheering the "comprehensive" package announced yesterday, time will tell whether it is enough to stop the rot. Optimism surrounding previous rescue packages has not always lasted. It might yet be worth another look at euro bonds. In a new paper John Muellbauer, of Oxford University, takes a stab.
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