A EURO BOND TO SUPPLANT US TREASURIES
The chairman of the eurozone finance ministers, Jean-Claude Junker, has proposed that a common euro bond, backed by the cumulative economies of EU member nations, should be issued to attract foreign investors and provide inexpensive borrowing for smaller nations. As part of the plan, bonds would be issued to cover the first 40 percent of the overall eurozone government debt. “This would be senior debt, guaranteed by the whole euro area. Anything above the 40 percent would be junior debt that would be issued by individual governments,” according to Reuters. “If agreed on, common eurozone bonds would in a matter of a few years create a highly liquid bond market of some 4 trillion euros which could successfully compete with a similar size U.S. treasuries market for large investors like China” . So far, the movement has met resistance from Germany, which is afraid that its borrowing capacity would be burdened—weighed down by the other weaker European economies. One proposal currently being floated to bring the Germans on board, says Reuters, is to tilt the decision making on bond issuance “towards countries with the lowest spread on their debt”—a move that would be akin to “effectively putting Berlin in control” of how much gets borrowed and by whom.
The creation of a common European bond market would be a huge step forward for European integration but also have ramifications that reach far beyond Europe. The biggest casualty could be America.
America is currently home to the biggest debt market in the world. America borrows more than a billion dollars per day to cover government spending alone. America borrows further billions each day to cover the cost of imports that exceed its exports. This may be a big part of the scenario why Hillary Clinton chose China for her very first overseas trip as secretary of state. According to Agence France-Presse, while in Beijing on Sunday, “Clinton urged China … to keep buying U.S. debt.”
No comments:
Post a Comment