In my last post I highlighted a recent interview by George Soros where he outlined a solution for the Eurozone’s problems – Eurobonds; however, Germany was against that plan. Why?
Politically it is unpopular. German citizens are essentially paying for problems in other members. To me this seems a bit unfounded as Germany is a creditor nation, meaning they lent the money to the indebted nations in the first place.
Since Germany lent the money to these countries, a default or financial crisis from a Euro unraveling would certainly have a major adverse impact on the German economy. It logically follows that the rest of the Eurozone and global economy would also suffer. As a result, at some point there needs to be a universal solution as the pain will be felt by debtor and creditor nation alike.
Currently indebted nations are cutting back on public spending, experiencing falling wages, and reducing social safety nets. The markets still aren’t buying that this will solve the crisis – sovereign interest rates are rising and European bank shares are falling. Further, those nations are experiencing more social unrest as a result of the measures taken to date. As this builds, so does the geopolitical risk.
Basically the action taken to date appears to be grossly inadequate.
Is the solution Eurobonds? I don’t know with any certainty; however, the risks associated with a Eurozone collapse are great. As such, we have to see a discussion of real solutions sooner than later and Eurobonds should be one of the options on the table. Like most problems there is no magic bullet, and it will require multiple tactics as things evolve.
