Why a eurobond would solve the debt crisis

I’m in Brussels, and for a moment today, when I saw a column of tanks heading towards the “Summit to Save Europe”, I thought the worst.

Actually, it was a military display for Belgian national day, itself a divided country without a functioning government. Apt to describe the farce around the euro.

The single currency was meant to promote economic convergence within the euro area. Instead it appears to have promoted too many factories in Germany, too much public spending in Greece and too many houses in Spain. I wish that was my insight. It was told to me by a senior Eurozone banker.

Everyone knows that a eurobond would solve this crisis. It would essentially replace all or part of the disparate bond markets of Germany, Italy, etc with one. So you would replace completely unsustainable Greek borrowing rates of, say 20, per cent with a common rate of, say, 4 per cent.

Of course, Germany would pay the price, with its borrowing rate and interest costs nearly doubling. But as I have pointed out repeatedly, there is a reason why, even as Athens burns, the German employment minister can describe his country as “on the expressway to full employment” (unthinkable a decade ago).

Germany has done really well out of this captive export market of half a billion for its superior engineering. Doubling its interest rates may be too much, but some sort of hike would be a small price to pay to keep the eurozone in order.

With this massive tax will come representation, of course. Germany will assume more control over tax and spend in the euro-regions of Greece and Portugal. This would be the phased fiscalisation of Europe.

What we’ll get tonight is the attempt to fudge that, achieved through complexity that necessarily confuses the bond markets, thus undermining any benefit. More on that in my idiot’s guide to eurozone idiocy tonight.