The term ‘eurobond’ is bandied about ever so lightly. This is dangerous.
This probably all started with Juncker a long time back given the rigid form in the joint Juncker-Tremonti proposal shot down by both the Germans and the French. Now it is revived by fiscal maximalists who know not that even US federalism is a fiscal compromise. This is why I use the Bini Smaghi self styled ‘provocative’ proposal as benchmark: it is modelled on a unitary state with no fiscal devolution whatever. There are two issues, the purpose of a eurobond and the agency issuing and servicing the eurobond. With maximalism out, on the grounds of ever so modest realism, and minimalism – e.g. the crippled EFSF – espoused, the middle way suggested in the Modest Proposal depends on two presuppositions: (1) One that the ECB is the only existing legitimate entity which can issue its own bond, therefore a eurobond, for any purpose whatever, in the same sense that any central bank may issue money wherewith to conduct open market operations, (2) Two that the clear goal of monetary policy is to kill the toxic threat from the sovereign debt overhang. It is of course, and must ever be, a guess to state the consequences of any bold positive policy after the markets have been treated with such moronic insouciance for over two years. Yet the ECB taking up the servicing of the Maastricht compliant tranche of eurosovereign debt is the only shot left in the barrel. And the markets are craving for a positive bold policy, gold and the swiss franc simply do not suffice as safe havens. Finally, on the matter of resistance to the Modest Proposal‘s Policy 1, which is really the pivot for the other two to fall into place, I suspect the ultimate denial comes from the sheer inability of the current establishment to contemplate a truly novel and innovative idea. Roosevelt had his fireside chats to take his ideas directly to the people. I suggest that the Modest Proposal should be rephrased where needed according to Roosevelt’s simile of the Garden Hose – you could even obtain the historical sound recording of that famous speech and tag it along, an intellectually potent garden hose may be the catalyst hitherto missing.
