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Saturday, August 20, 2011 9:38 PM

European Roundup: Germany Nixes Eurobonds Once Again, So Does EU President Herman Van Rompuy; Belgium Wants Eurobonds and Bigger Bailouts

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This weekend Belgium finance minister came out in support of Eurobonds. He may as well have come out in support of the "Great Pumpkin" theory.

Belgium and the PIIGS (Portugal, Ireland, Italy, Greece, Spain) may want Eurobonds but if Germany, France, Finland and other countries don't want them it is not going to happen. The vote must be unanimous.

Interestingly, EU President Herman Van Rompuy just nixed Eurobonds but a rumors of an EU Eurobond feasibility study ignited a rally on Friday in Europe. That rally faded quickly in the US.

Here is a weekend roundup of European news starting with a look at what's not going to happen.

Belgium adds to call for euro bonds, bigger bailout

Reuters reports Belgium adds to call for euro bonds, bigger bailout

Pressure on Germany and France to take radical action on the euro zone debt crisis mounted on Friday, as financial markets sagged further and Belgium added its support to calls for the region to issue debt jointly.

Belgian Finance Minister Didier Reynders said the bloc should issue common euro bonds and expand its bailout fund to calm repeated market selloffs of government bonds and bank shares of vulnerable debtor countries.

But Reynders' call in the Financial Times for the euro zone had to prove it had "deep pockets" underlined increasing fears among euro zone governments that they would be unable to reassure investors that euro zone banks are safe without drastic action by the 17-nation bloc.

Merkel repeated her criticism of proposals for euro zone bonds, telling a rally of her Christian Democrats this was a "slippery slope" that would probably leave everyone worse off.

"Euro bonds would not allow any rights at all to intervene to force discipline on others," she said.

French Prime Minister backed her view, writing in an editorial published in daily Le Figaro that common euro zone bonds without further fiscal consolidation could threaten France's triple-A credit rating.
EU President Opposes Common Euro Bonds

Inquiring minds note that EU President Van Rompuy Opposes Common Euro Bonds
European Union President Herman Van Rompuy ruled out issuing common bonds as a cure for the debt crisis, saying any joint borrowing should wait until European economies and budgets are better aligned.

With three countries drawing financial aid and national debts ranging from 6.6 percent of gross domestic product in Estonia to 142.8 percent in Greece, this is the wrong time to set up a single borrowing agency, Van Rompuy, 63, said in an interview broadcast on Belgium’s RTBF radio today.

“We could have euro bonds on the day when there is genuine budgetary convergence, the day when everyone is in balance or virtually in balance,” he said.
12th of Never

The day everyone is in balance is the 12th of never. It's not going to happen.

Rumors that the EU commission was studying Eurobonds ignited a faded rally in Europe on Friday. For details, please see Yet Another 2.5 Hours, 2.3% Hour Rally, This Time on Silly Rumors Eurobonds Back in Play

Germany Rebuffs Renewed Euro Bond Debate

The future of Eurobonds is with Germany. Here is the present as well as the projected future: Germany rebuffs renewed euro bond debate
BERLIN | Sat Aug 20, 2011 12:28pm EDT

Germany on Saturday rebuffed renewed calls that euro zone countries should issue joint euro-denominated bonds and have a joint finance minister, arguing that would only be possible if fiscal policy were collective already.

"As long as we don't collectivise financial policy we also cannot have a uniform interest rate level. The different rate levels are the incentive to run a solid economy or the punishment if you are not running it properly," Finance Minister Wolfgang Schaeuble, speaking at his ministry's open day.

"So the question is, how do we manage to promote political integration step by step. We cannot collectivise interest rates," Schaeuble said, referring to proposals that the euro currency bloc should issue common euro bonds.

Germany has led resistance to calls that the euro currency bloc should issue common euro bonds and expand its bailout fund to calm repeated market selloffs of government bonds and bank shares of vulnerable debtor countries.

Der Spiegel magazine reported finance ministry calculations that showed issuing joint euro bonds would cost Germany billions of euros each year.
Anyone paying any attention to Eurobond rumors that do not include support from Germany is wasting their time. Eurobonds also need support from French President Nicolas Sarkozy. Eurobonds do not have that support neither.

As it stands, both Chancellor Angela Merkel and finance minister Wolfgang Schaeuble oppose Eurobonds. I suspect the former is out of political expediency. Merkel realizes she does not have the votes.

Until this setup changes, Eurobonds are dead, no matter how many others support them.

Mike "Mish" Shedlock
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