Forget Draghi, Barroso just rescued joint Eurobond plans

Jose Manuel Barroso

“Mario Draghi has shown his most dovish attitude to date,” said Banco Santander analyst Fernando Marín in a Friday note to investors, in Madrid. The governor of the European Central Bank yesterday sent stock indexes up after his suggestion that the main interest rate will stay as low as at the current 0.5% bar–and it could go lower. Draghi dismissed inflationary fears but confirmed what otherwise is a common view: a weak prospect for the economy in the Eurozone.

Cheap money is the word, not yet recovery. Tiny interest rates mean more accessible bank credit and deposit facilities, and eased inter-bank lending, too. Even some peripheral sovereign bonds saw a slight reduction of premium risk costs. For instance, the Spanish bond spread over German bunds fell below the 300 basis points to 297.9 bp.

But these trees shouldn’t impede us to see the wood. While Draghi’s “our exit is very distant”–about keeping the ECB’s monetary policy for longer–may have generated enough market confidence to afford Europe a languid, hopefully uneventful summer, president of the European Commission Jose Manuel Barroso dared to be bolder just a few days ago.

Barroso and Olli Rehn, who is vice-president and responsible for Economic and monetary affairs, have set a group of experts charged with the task of studying “the merits and risks, legal requirements and financial consequences of initiatives for the joint issuance of debt in the form of a redemption fund…” Yes, that is partial, retroactive mutualisation of public debt refinanced jointly by members of the European Union.

This is what a currency union area must look like–granted, it’s one step in a long path. But it will not please everyone, and indeed Michael Meister, the deputy caucus leader of Chancellor Angela Merkel’s party, was quoted by Bloomberg spelling out his mood about the news: “One can only wonder what motivated the European Commission to take this step,” Meister retorted. “Most of all, a transfer union wouldn’t make Europe more competitive. That has to be the EU commission’s main focus.”

The team of experts should publish the results of their work before the seocnd quarter of 2014, and will include the viability of issuing Euro T-bills.

About the Author

Victor Jimenez
London contributor at, reporting about the City and the Eurozone economies. He regularly writes for Spanish newspaper group Prensa Ibérica--some of his features include shared work with journalists of The Daily Telegraph and the BBC.

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