eurozone bonds

Eurozone government bonds could in future be issued by a single authority with countries’ budget plans being approved by the bloc’s political leaders, a top European Central Bank policymaker has suggested. The proposal by Lorenzo Bini Smaghi, ECB executive board member, is one of the most radical yet for preventing a repetition of the eurozone’s debt crisis, and would involve a big step towards political integration in the 17-country bloc. It highlights the pressure the ECB is exerting for a bold response to the crisis by political leaders, who were meeting in Brussels on Friday.

Mr Bini Smaghi, whose proposals also include a ban on eurozone members defaulting, said eurozone politicians often did not understand how financial markets worked and warned that there was “insufficient capacity to ‘think European,’ that is to channel national decision–making in a broader framework”. He also urged greater centralisation of bank supervision in Europe to prevent national regulators favouring their own countries’ financial institutions – citing the risks Ireland’s banking system had created for the rest of the eurozone. Read more

Ralph Atkins

The European Central Bank seems almost as divided as politicians over E-bonds, or common eurozone bonds. Jürgen Stark, executive board member, voiced opposition in an interview with Süddeutsche Zeitung. “Every country must take responsibility for their own debts,” he said. Similarly, Nout Wellink, the Netherlands’ central bank governor, said in Amsterdam that such burden-sharing would weaken the system.

But ECB policymakers who take, let’s say, a less-German view of the world, have been more sympathetic. Jean-Claude Trichet, president, last week told the European Parliament such ideas should not be ruled out. Lorenzo Bini Smaghi, another executive board member, has just told CNBC that “it’s useful to think about these issues”.

One worry at the ECB’s Frankfurt headquarters might be that Germany’s government and its central bankers are fuelling financial market concerns about an apparent lack of political will behind the European project and the continent’s 12-year-old monetary union. Read more