Sunday, 12 December 2010

Germany, Europe and the Lame Duck Syndrome

[Edoardo Montenegro, Turin] - Germany, with the support of France, is ready to reject the creation of European Sovereign Bonds at the European Council meeting in Brussels next week (1).

Jean-Claude Juncker and Giulio Tremonti proposed e-bonds issued by a European Debt Agency to ensure the EU a liquid bond market and save member states in risk of default. The EDA would gradually control paper for as much as 40% of the EU GDP (2).

Germany does not accept to merge European public debts on grounds that German citizens would pay for other countries' debts (3). Helmut Schmidt, former German chancellor, accused Angela Merkel not to understand European economy and the Bundesbank to be reactionary (4).

On the one hand, there is no doubt that Germany is the country which gained more from the Euro (5). On the other hand, however, many observers - as the Governor of the Bank of Italy Mario Draghi - believe that single countries can survive debt crisis without external help (6).

The European Central Bank, in the meantime, is buying Portuguese and Irish bonds in order to defend the Euro; but President Trichet is aware politicians have to reform the system as soon as possible, otherwise the indipendence of the ECB would be at risk (7). As outlined by the former Italian President Carlo Azeglio Ciampi, "A common currency and single national economic policies cannot coexist" (8).

The Euro seems still to be safe.

The problem is that while Germany is asking to cut deficits, keep the euro exchange rate high and fight inflation, other countries probably believe that growth might be led by the devaluation of Euro and a larger - even if controlled - inflation rate.

Germany should not reject e-bonds, but take the lead of the EU and pretend more warranties to create them.


(1) Peter Spiegel and Quentin Peel, "Merkel rejects debt crisis proposals",, December 7th 2010.

(2) Jean-Claude Juncker and Giulio Tremonti, "E-bond would  end the crisis",, December 6th 2010. A large synthesis article is also available in Italian: Jean-Claude Juncker and Giulio Tremonti, "Tremonti e Juncker: e-bonds per affermare l'irreversibilità dell'euro",, December 7th 2010.

Jean-Claude Juncker is Prime Minister and Treasury Minister of Luxembourg, while Giulio Tremonti is the Italian Minister of Economy and Finance.

The idea of Euopean Sovereign Bonds was launched in 1993 by the European Commission President Jacques Delors and later by one of his successors, the Italian Romano Prodi, and by Giulio Tremonti itself, as a mean to finance public works in Europe. Recently, it was the former European Commissioner for Competition Mario Monti who proposed this solution to the European Commission President José Manuel Barroso in order to help European countries in risk of default.

(3) Danilo Taino, "La Germania scommete sull'euro: 'Chi vuole il crollo, si romperà la testa'",, December 10th 2010.

(4) Andrea Tarquini, "Schmidt attacca Merkel e Buba: "Incompetenti e reazionari",, December 8th 2010.

Helmut Schimdt, as well as French Valery Giscard-d'Estaing, is considered the father of the European Monetary System, which made it possible to launch the Euro. Angela Merkel is the current Chancellor and Prime Minister of Germany.

(5) Vincenzo Visco, "La sfida tedesca all'eurobond",, December 9th 2010.

(6) Ralph Atkins, Lionel Barber and Tony Barber, "Interview with Mario Draghi: Action on the addicts",, December 10th 2010. This article is also available in Italian: Ralph Atkins, Lionel Barber and Tony Barber, "Intervista a Mario Draghi: l'euro non si tocca ma l'acquisto di bond può minare l'autonomia della BCE",, December 10th 2010.

(7) Ralph Atkins, "Game far from over as Trichet presses for eurozone unity",, December 7th 2010.

(8) Massimo Giannini, "I 90 anni di Ciampi: 'La politica ha perso il rispetto delle istituzioni'",, December 8th 2010.

Related articles in English:

  • Paul Krugman, "Freezing out hope", The International Herald Tribune, December 4th 2010
  • Ralph Atkins, Quentin Peel and Josh Chaffin, "Europe's leaders at odds over bond plan",, December 6th 2010
  • Guy Dinmore, "Draghi says Italy needs faster growth to pay back debts",, December 7th 2010
  • Peter Spiegel, "IMF calls for 'comprehensive' euro solution",, December 8th 2010
  • Martin Wolf, "Is there the will to save the eurozone?",, December 8th 2010
  • Moisés Naím, "A wold without Europe", The International Herald Tribune, December 8th 2010
  • Quentin Peel, "Merkel seeks calm after Juncker's E-bond blast",, December 9th 2010
  • David Oakley and Peter Spiegel, "Eurozone bond markets face testing run",, December 9th 2010
  • Ousmène Mandeng, "Euro's woes should spark monetary system rethink",, December 9th 2010
  • Ralph Atkins, Lionel Barber and Tony Barber, "Draghi warns on bond purchases",, December 10th 2010

Related articles in Italian:

  • Paul Krugman, "Il caso irlandese",, December 4th 2010
  • Eugenio Scalfari, "Le esequie scomposte di un potere defunto",, December 5th 2010
  • Romano Prodi, "I meriti della società, lo stallo della politica", Il Messaggero, December 5th 2010
  • Massimo Giannini, "Un brodino per l'euro ammalato",, December 6th 2010
  • Rossella Bocciarelli, "Draghi: 'Crescita, rigore, euro'",, December 7th 2010
  • Dino Pesole, "No tedesco all'agenzia sui bond",, December 7th 2010
  • Federico Fubini, "La 'Legge Ciampi' e la svolta italiana sul debito europeo che spiazza i mercati",, December 7th 2010
  • Dino Pesole, "Il Trattato va bene per gli E-bond",, December 8th 2010
  • Guido Gentili, "Un debito che rafforza l'Unione",, December 8th 2010
  • Gian Enrico Rusconi, "L'euro sfida la leadership tedesca",, December 8th 2010
  • Vittorio De Rold, "Eurobond, per guardare oltre la crisi",, December 8th 2010
  • Beda Romano, "Juncker rilancia sugli e-bond",, December 9th 2010
  • Isabella Bufacchi, "Ora il debito pubblico costa più caro per tutti",, December 9th 2010
  • Isabella Bufacchi, "All'asta tedesca dei bond sottoscritti 4 miliardi su 5",, December 9th 2010
  • Vittoria Puledda, "Fmi: sistuazione preoccupante in Europa",, December 9th 2010.
  • Eugenio Occorsio, "'Il progetto della moneta unica è fallito. Il futuro è un euro del nord e uno del sud'",  interview with Luigi Zingales, la Repubblica, December 9th 2010
  • Marika De Feo, "Trichet: debito fermo solo in Germania e Italia",, December 10th 2010
  • Vittorio De Rold, "L'Europa si divide sugli e-bond", Il Sole 24 Ore, December 10th 2010.
  • Jim O'Neill, "Sognando un euro forte",, December 16th 2010


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