Bonds traded on the international euro capital market, primarily issued by governments, companies and banks. A distinction is made between – bonds with fixed interest rates (straight bonds), which predominate on the euro financial markets in terms of volume, and – floaters (floating rate issues), i.e. bonds with floating interest rates. Euro bonds are primarily issued in EUR or USD. – Common euro bonds, i.e. the proposal of a common government bond issued by several members of the European Monetary Union. This is intended to offset interest rate premiums on bonds issued by sovereigns in which investors have a lower degree of confidence because they do not rule out the likelihood that they will leave the European Monetary Union. – In detail, this means that – the members of the monetary union are jointly and severally liable for the bonds, i.e. they are responsible for the sums that have accrued to other states; – the interest rate would be lower than that which countries such as Greece or Ireland now have to offer in order to find buyers for their bonds, while – on the other hand, however, the interest burden for the government bonds would increase considerably for Germany or the Netherlands, for example; for Germany alone, one calculated a few tenths of a percentage point more premium on a disadvantage of 7 billion euros per year; other calculations even come to a figure of 7 billion euros per year. Other calculations even arrive at a loss for Germany of EUR 47 billion per year. EUR per year. This is due, on the one hand, to Germany’s excellent credit rating and, on the other hand, to the fact that federal bonds are liquid and thus very easy to trade; – the interest rate risk would be communitized in this way and thus – the very thing that sends the right signals would be prevented: those who manage well pay lower interest rates, those who manage poorly pay higher interest rates – but it is by no means guaranteed that members with hitherto negligent budgetary management will also use any new low-interest funds that may accrue to them in an economically sensible way, indeed – the higher the mountain of debt of the financially weak countries grows, the greater their threat potential, because – the financially weak countries will force the issuance of new bonds with the threat that, in return, they will not be able to service old debts from joint bonds, which – in the end, will turn joint and several liability and the entire monetary union on its head: The guarantors will no longer be in the driver’s seat, but the highly indebted states. At the same time, financial sovereignty as the right of parliamentary bodies to determine revenues and expenditures is lost, which is impossible even in Germany in a corresponding form: there is no joint borrowing by the federal and state governments, and each state parliament decides on debt policy. – Whether and to what extent the European Financial Stabilization Facility, with its activity of issuing its own bonds, is not in fact already issuing Eurobonds is a much-discussed question and one that has been answered in the affirmative by leading constitutional law experts. Incidentally, it remains to be seen at what price – and whether at all! – investors around the world will be willing to include euro bonds in their portfolios. – See bond, floating rate, bond spread, bailout, blue bonds, credit transfer, e-cart, euro bonds, euro crisis, euro market, European Debt Agency, European Stability Mechanism, floaters, Japanization, moral hazard, Plan C, return ideology, structural reforms, two-way option.
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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