Unless otherwise defined, this refers to issues that should be placed on the market jointly by different euro area countries, by a European debt agency. – Until now, Germany in particular has resisted such plans. This is because the creditworthiness of the southern members of the euro area in particular (Italy, Spain, Portugal, Greece) and Ireland is currently (end of 2013) poor; government bonds from these countries are traded at a high interest rate premium. – The reasons for the decline in competitiveness of these member states are: – delayed reforms on the labor market and in the corporate sector, which is visibly reflected in the comparatively high unit labor costs, – an inadequate tax system with, among other things, too low a fiscal burden on energy, alcohol and tobacco, – poor tax morale (lax attitude to taxation), – too little investment in research and development, resulting in too few modern industries and therefore an unfavorable unit value ratio in economic terms, and all this – with a widely prevailing scapegoat ideology among the public, in which own failures are blamed on “Brussels”. – These and other failures would have to be borne by German taxpayers through the lower yields on such joint bonds and, in the event of a default, through higher taxes, without any parliamentary decisions being taken (“no taxation without representation”). – Nor would there be any guarantee that the funds raised from a common bond would actually be used to reduce the weak points and not be spent on magnificent buildings or consumption. – Furthermore, it is to be expected that with increasing issuance of euro bonds, these would have to be endowed with an ever higher interest rate, because investors all over the world would become suspicious about the ability to make repayment and the willingness of repayment of the papers; and this especially when member states of the EU accumulate ever higher debts; and it is a fact: almost all treaties promising European fiscal discipline have been broken in the past. – Moreover, it would have to be determined who should have the power to decide on the issuance of such securities. – If euro bonds are only guaranteed by EMU members, this would be tantamount to splitting the EU. – Above all, however, there is the problem of moral hazard: Eurozone members would rely on being supported by the community in case of emergency and would put aside (unwelcome) corresponding efforts of their own to regain sound public finances; and liability without control has never gone well. A stronger case of free riding can hardly be imagined. Lack of fiscal discipline is rewarded, while fiscal solidity is punished. – Finally, constitutional concerns must also be highlighted. There is a good reason why there are no joint borrowings by the federal and state governments in Germany, because the fiscal policy of the states is the sole responsibility of their parliaments. – It is completely unrealistic to assume that the issuance of euro bonds would act as a liberating blow, as it were, and free Europe from the constraints of the market. Causal therapy is the order of the day: the causes of the markets’ mistrust must be eliminated, namely the national debts of the deficit countries must be reduced to the level agreed in the Maastricht Treaty. – See alignment automatism, fear, perverse, bond spread, bail-out, blame game, blue bonds, credit rating transfer, ClubMed, currency swing, deficit financing ban, dysfunctionality, currency area-related, Ekart, blackmail potential, EU financial aid, euro bonds, European Financial Stabilization Facility, European Monetary Union, fundamental error, European Monetary Fund, EMU blow-up, ECB fall from grace, fiscal pact, Giips states, government spreads, Greece crisis, peer pressure, Helleno mania, Kaldor Hicks criterion, wage policy, coordinated, moral hazard, Plan C, rescue package, debt repayment pact, European, seven percent limit, solidarity, financial, blocked account, sovereign debt repatriation, stabilization mechanism, European, southern front, Tina, redistribution, central bank-induced, imbalances, EMU-internal, asset levy, contract compliance, growth promotion, forced expropriation, two-way option. – Cf. ECB Annual Report 2008, pp. 93 ff (different competitiveness of individual EU member states; overviews), ECB Monthly Bulletin of May 2013, pp. 93 ff (in-depth analysis of the current state of euro area members; overviews; references).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
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https://www.gerhardmerk.de/