Germany reluctant over creation of a Eurobond

Wolgang Schauble is a man of considerable talent and courage. He has bravely overcome much personal hardship in his life . He has made a distinguished contribution to European politics.

However, with respect to the current crisis in Europe over sovereign debt his and Chancellor Merkel's opposition to the creation of a Euro sovereign debt bond to protect the European economy from bond buyers blackmail and to advance the quality and sophistication of the European monetary and fiscal institutions is a mistake. In today's Financial Times there is a very interesting video interview with Herr Schauble in which he explains his views on European monetary and fiscal policy and reiterates his deeply anti-Keynesian fiscal conservatism insisting that deficit reduction must be a top priority wherever possible.

This is an error when unemployment is as high as it is in so many key European countries. High unemployment in Europe is destabilizing and quite frankly history has shown us where it can lead.We neglect history at our peril.

 At a time when bond buyers' blackmail is at work in short selling the debt of countries like Spain, Portugal, Greece and Ireland and Italy the entire Euro project is at risk. It would be much better for the Europeans to persuade the German dominated European central bank to immediately increase its acquisition of sovereign debt bonds from the countries under attack and to convene a study group to at least consider the idea of an eventual sovereign debt instrument for the Euro zone than to reject these measures out of hand.
One of the principal objections that is often stated that it would cost Germany more to finance its own debt because the euro bond would demand a higher interest rate than a German bond on its own is easily solved by giving countries the option including Germany to issue either of the two debt instruments or some combination of them. It is possible that the mere existence of the Eurobond would draw purchasers away from the German sovereign bond and thereby raise interest rates on them but I doubt that this spread would be very wide and with experience over time it could easily be managed. So long as there are some constraints structurally embedded in the system based on the relative size of the economy and the rate of unemployment that prevails no one country will be able to take undue advantage of the system and the option to issue sovereign national bonds remains.