Presumably the eurobonds would be under eurozone finance ministers’ control. The board would constitute the fiscal counterpart of the European Central Bank; it would also be the European counterpartoftheInternationalMonetaryFund.
Debate will therefore revolve around voting rights. The ECB operates on the principle of one vote per country; the IMF assigns rights according to capital contributions. Which should prevail? The former could give carte blanche to debtors to run up deficits; the latter mightperpetuateatwo-speedEurope.Compromisewillbenecessary.
Because the fate of Europe depends on Germany, and because eurobonds will put Germany’s credit standing at risk, any compromise must put Germany in the driver’s seat. Sadly, Germany has unsound ideas about macroeconomic policy, and it wants Europe to follow its example. But what works for Germany cannot work for the rest of Europe:no country can run a chronic trade surpluswithoutothersrunningdeficits.Germanymustagreetorulesbywhichotherscanalsoabide.
These rules must provide for a gradual reduction in indebtedness. They must also allow countries with high unemployment, such as Spain, to run budget deficits. Rules involving targets for cyclically adjusted deficits can accomplish both goals. Importantly,theymustremainopentoreviewandimprovement.
Bruegel, the Brussels-based think-tank, has proposed that eurobonds constitute 60 per cent of eurozone members’ outstanding external debt. But given the high risk premiums prevailing in Europe, this percentage is too low for a level playing field. In my view, new issuesshouldbeentirelyineurobonds,uptoalimitsetbytheboard.