Daily Archives: June 7, 2010

Slowly, too slowly perhaps, the eurozone is delivering its response to the collapse of market confidence triggered by the European sovereign debt crisis.  An important step appears likely to be taken at a finance ministers’ meeting in Luxembourg on Monday.  They are set to agree the terms on which a Special Purpose Vehicle will be able to borrow up to €440bn on the markets to help a eurozone member-state that is experiencing borrowing difficulties.

On the face of things, this initiative goes considerably further than the €110bn rescue package arranged last month for Greece. The Greek aid is based on bilateral loans from other governments in the 16-nation eurozone. But the SPV will be a self-contained entity, operating under Luxembourg law, that will issue bonds backed by member-state guarantees.

You could almost call them “common eurozone bonds” – except that, for political reasons, this is an all but unmentionable term.  Opposition to common eurozone bonds is exceptionally strong in Germany, where the prevailing view is that such a measure would simply benefit wastrels like Greece and impose higher borrowing costs on countries that practise fiscal discipline – i.e., Germany itself.  Nonetheless, the German government has taken an energetic role in designing the structure of the SPV.  It is a big moment for Germany and one which shows that the German commitment to making a success of European monetary union is not to be underestimated.