Written by: PaxForex analytics dept - Tuesday, 10 July 2012 0 comments
Eurobonds: Hollande’s view
The issue of eurobonds was raised by French President Francois Hollande at the informal EU summit, which was held in May 24 in Bruxelles. The new president of France in favor of the creation of pan-European debt obligations. This act will distribute the debt pressure on 27 EU member states with equal responsibilities. Their presence should reduce the pressure on the markets of "problem" EU countries, which are now forced to borrow money at high interest rates. In addition, eurobonds are able to attract new investments to the European Union, which in turn will have a positive impact on the European economy as a whole. At the summit in Bruxelles the French president insisted that the creation of the eurobonds was placed on the agenda of the next European Summit, in June 28-29. Hollande has made the resumption of the debate about his proposal.
Eurobonds: Merkel’s view
Opposed to the creation of eurobonds serves Germany and in this it is supported by Finland, Sweden and the Netherlands. Chancellor Angela Merkel fears that the "mutual aid" in matters of debt will reduce fiscal discipline in the "problem" countries: getting support they are less jealous will reduce the budget deficit and structural reforms. According to Merkel, eurobonds will not introduce its contribution to economic recovery. Moreover, she said, eurobonds are likely to lead to serious consequences. The German chancellor also noted that the resumption of economic growth in Europe should contribute to the development of the domestic market and improved labor market situation. According to her, many countries lack the labor force, while in others, on the contrary, there is high unemployment, including among young people.
Eurobonds: our opinion and view
But how countries can encourage the development of the domestic market of any country in the period of economic crisis without the involvement an additional investing, at least for the start of the recovery? The French president, whose economic strategy supports U.S. President Obama, offered a not easy but very effective method for overcoming the crisis. The logical question is why Germany is against it? From this we can make a conclusion - Merkel is afraid of the collective responsibility of the European Union in
general and Germany in particular. Because of eurobonds EU will have to pay the price required, and that means that Germany has doubts that after those payments on eurobonds the EU countries can receive a new economic crisis. But what else can stands for Merkel’s position? Of course the interests of big bankers, different top managers and other financial giants. Why? Let’s discover closely the following example. Everyone knows that for the creation of new job places any man needs funds. Let’s imagine you want to open your small business, maybe some little shop. If you don’t have your own funds you will ask your bank to credit you. But at the times of financial crisis the bank will tell you something like: “Sir, we’re sorry but we don’t have additional sources for your project or we have them but with high percentage.” In this case you likely will decide to run away from such offers. But in case of eurobonds banks will have funds, which will be raised from selling, and those funds can really help small businesses. If EU will have equal responsibility on spending eurobonds’ funds as well as united policy on this issue, then every bank will be under the strong control on spending those funds. The big part of raised funds can be separated specially for helping small businesses. Of course, bankers will not have an opportunity to get their usual huge bonuses and maybe that’s one of the reasons of why big financial establishment is against the offer of French president Hollande? One may doubt, but with proper use of funds received from the sale of eurobonds it is very likely that the economy will revive in Europe. Almost similar way was used in the U.S. by releasing additional U.S. Treasuries. This measure has already yielded positive results in America. All their bankers understood that in difficult times need to save the whole economy without thinking about billions of profits. They will have them again when the economy will be stabilized but at the same time there already will be created new job places. Unfortunately, if Germany will continue to stubbornly insist that its way is only one correct, we can hardly expect the growth of the Euro in the coming months.