There are many common misconceptions on Eurobonds out there. I was going to compile a list, but the German economic newspaper Handelsblatt did me the favor of having them all in one article – however not identified as such.
The political pressure on Germany and other surplus countries within the Eurozone to introduce Eurobonds is constantly increasing. I’m not a big fan of Eurobonds without further political integration, but given the problems of the deficit countries, I fear we may not have the time to introduce a common democratic European government to orderly introduce Eurobonds. As I write this, Angela Merkel and Sarkozy just pleaded for a common European Economic Government. As Merkel’s CDU always cited this too as a prerequisite to the introduction of Eurobonds, I guess that the chances that we actually will get Eurobonds are increased, despite Merkel saying otherwise.
So the question addressed in this post is: Can Eurobonds work without further political integration and thus without creating a “transfer union”. Yes, that is possible.
There is some trouble going on in the CCC camp as the CCC expelled Daniel Domscheidt-Berg from it’s club. The CCC board was irritated, if not irate, because Daniel asked the hackers at the camp to look into his and other leaking platforms. The CCC claims that Daniel wants to lever on the clubs reputation and insisted that it turned similar requests by other parties down previously and Daniel should have known. Here is the talk that Daniel held on the camp that apparently caused this anger.
To be honest, nothing in this talk struck me as calling for trouble. Seeing this talk, it is hard for me to imagine that the CCC decision was biased and well thought through. I also don’t see the point in criticizing Daniel as a person. His project is not ideal, especially because he didn’t deliver on the transparency yet that the name OpenLeaks promises. However, what Daniel said in this talk is well in line with previous talks, with what common sense, and with information that I obtained in some private Email exchanges with the OpenLeaks team. So, unless someone else comes up with a more promising project, I hope the OpenLeaks team proceeds and we finally have a leak platform up and running again.
While people are awaiting a market massacre following the USA downgrade to AA+ by S&P, I felt it’s about time to update my regular list of country risk premiums.
- While tomorrow everyone will surely watch the CDS spread of the USA, on Friday there was no mayor movement before closing. Compared with a month ago (8th of July 2011), it widened only 1BP. So either the downgrade did leak or it left the markets completely unimpressed. I’d guess the later.
- Once again strong increases took place in the Eurozone countries, with especially worrying increases for Cyprus (the spread more than doubled to 809BP), Spain (+40% to 414BP), and Italy (+66% to 373BP).
- Nearly all other Eurozone countries saw also widening spreads, most worryingly France and Belgium were reminded that nobody is untouchable in this crisis. The only Euro members with narrowing spreads were Greece, Portugal and Ireland that profited from the recent bailout, but stayed at pathological levels. The savings in funding costs for these countries was rather small, so I wonder if the bailout was in the interest of the European people as it likely increased the average funding costs across all countries.
- Some non-Euro countries like Sweden and Poland also saw widening spreads. Probably due to significant exposures to the Eurozone in their banking systems and because they will be hit by a recession in Europe.
Since its inception, long before it came to focus of the media, the main topic of this blog has been the country risk created by the financial crisis and it’s political consequences. As this is increasingly an European issue and I feel we have to start developing a truly European Demos, I’ll start to write article mainly in English in the hope to attract more readers – and hopefully commentators – from other countries to broaden up the discussion.