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The following article was published in our article directory on December 13, 2010.
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Article Category: Business
Author Name: Amanda xzh
Constantly exposed to debt in the euro area before the crisis, the market made a strong program of the European Union urgently to deal with the European debt crisis. Juncker of Luxembourg, and Italy Finance Minister Giulio Tremonti recently proposed EU bonds might seem a good solution. Juncker, the EU and other proposed bonds is to create a Council of Europe European debt agency (EDA), which is authorized to issue sovereign bonds European Union, the issue size gradually increased to the equivalent of the EU and its member states the level of 40% of GDP; and European government bonds with the EU Member States to establish bonds of mutual exchange mechanism.
Should be said that the EU public debt is indeed a constructive proposal, it will help to correct current euro zone single currency policy and decentralized fiscal policy contradictions, with the supervision of members of the function of fiscal policy violations. EU Member States Treasury bonds and mutual exchange of the discount rate, will enable those members of the euro zone sovereign debt too much debt in the convertible when the EU faces a higher discount, thereby improving their financing costs, but not so limit its production financing the risk of the spread of destructive. Once the financing capacity of Member States lose their market, the EU will have to resort to the debt agency bonds, which would strengthen the EU member states the supervision of fiscal discipline.
However, European government bonds issued in Germany Quedui opposition, it is not because the Germans stingy, but both the current EU bonds suspected aggressive and facing the feasibility of torture. Strictly speaking, the EU is the essence of a credit bond synthesis of hybrid bonds. In this way, how to determine the EU's credit bonds, and conduct a credit rating to determine the pricing of European bond markets has become a problem.
Currently the EU is still a relatively loose combination of sovereign states, rather than independent credit subject, such as sovereign countries also lack a stable source of revenue. This makes it difficult to refer to the EU public debt to sovereign credit ratings, after all, the basis of sovereign credit rating is a sovereign and independent state finances. Sources of the EU bond debt service is not clear, but the use of bonds is also uncertain. Clearly, the lack of an effective debt principal, and the use of random bonds, the instability of the market can not be conducted for the European government bond credit rating.
Synthesis of the EU as a credit debt, credit if its credit to certain members drawn from the weighted model, then the bonds to some extent the EU Member States with low credit high credit member's credit guarantee. Thus, all EU member states through the EU's credit bonds as Cao Cao in the Battle of Red Cliff warships are generally bundled together. Germany's first objection is not surprising.
In view of this, the European Union, European government bonds to deal with the current debt crisis is likely to reverse out of the euro area will accelerate that most want to issue bonds with the EU is in deep debt sovereign debt crisis countries, rather than Germany, France and other countries. These deep debt crisis of the country, certainly wants to use debt in the European Union abandoned its own case of credit to continue financing bonds.
While Germany, France and other European sovereign credit rating higher than the national debt and credit, are reluctant to parity bonds convertible into the EU, so that the EU government bond markets lemon effect similar to the secondary market, the market will depend on the EU issue bonds to transform state vest sovereign debt to hold. EU public debt is set to direct the financial risk of the EU countries together, to become a prospering, a loss for both sides of the community. EU member governImplementation can not be shared directly with taxpayers taxes, and can not be directly affected and controlled by members of the financial expenditure, EU public debt as the euro becomes a problem as the abuse of the euro and the EU countries, the cash machine credit bonds.
At the same time, the EU and EU Member States Treasury bonds of mutual exchange between the discount rate will also be tested to determine its feasibility. If the European Union against the National Treasury bond discount rate is too high, countries can only alleviate the problem of short-term liquidity problems, can not issue bonds to reduce their real costs. This is like the current emergency relief program, the problem only temporarily ease the country's immediate debt pressure, the problem onto the future. If the discount rate was significantly lower than the national cost of issuing bonds in the open market, then this means that countries such as Germany and France shared the national taxpayer debt risk. Mixed credit support to EU Member States of the EU public debt, public debt trying to maintain the EU countries will assume greater credit obligations and can not obtain such rights, resulting in typical tragedy of the commons effect.
Specific to the European bond market, if EU Member States bonds convertible bonds and discount rate is a non-market-oriented protocol operations, which will be the policy to the market with great arbitrage. Problems in the short bond market, while Member States in order to buy low and to the EU national debt discount rate determined by bond convertible into the European Union, and then converted into bonds and then Germany and France, the European Union and other debt. Obviously, this is the EU who do not want to see the bond proposal, but it is inevitable, because of this policy arbitrage will further push the euro the brink of collapse.
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