Eurobonds: The Issue That Could Shatter Europe
Michael T. Snyder | May 24, 2012 03:29AM ET
Would you pool your debt with a bunch of debt addicts that have no intention of reducing their wild spending habits? Of course you wouldn't. But that is exactly what Germany is being asked to do.
Increasingly, "eurobonds" are being touted as the best long-term solution to the financial crisis in Europe. These eurobonds would represent jointly issued debt by all 17 members of the eurozone. This debt would also be guaranteed by all 17 members of the eurozone. This would allow all countries in the eurozone to enjoy the same credit rating that Germany does, and borrowing costs for nations such as Greece, Portugal, Italy and Spain would plummet.
But borrowing costs for Germany would rise substantially. In fact, it is being estimated that Germany could be facing an extra is reporting , some big European corporations are already beginning to implement their own "contingency plans"....
Big tourism operators like TUI of Germany and Kuoni of Britain are demanding the addition of so-called drachma clauses to contracts with Greek hoteliers should the euro no longer be in use here. British newspapers are filled with advice columns for travelers worried about the wisdom of planning a vacation in Greece, or even Portugal and Spain, should the euro crisis worsen. Large multinational companies like Vodafone Group, Reckitt Benckiser and Diageo have taken to sweeping cash every day from euro accounts back to Britain to limit their exposure.
Sadly, this is probably only a small taste of the financial anarchy that is coming.
France is likely to keep pushing hard for the creation of eurobonds.
Germany is likely to keep fiercely resisting this.
At some point, a moment of crisis will arrive and a call will have to be made. Will Germany give in or will political turmoil end up shattering Europe?
It will be interesting to see how all of this plays out.
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