Runaway leaders on Mars

Which income stability can the balancing of the budget guarantee to the German taxpayer in a few years, if one week or the other he may be called to bailout the Greek government, or even the Italian government? Which yield should an investment have in France, if the bank credit can stop any moment now and if the financing costs can increase overnight?
From this point of view, the slowness of the European answer is causing the current stagnation. In its turn, the slackening in the economic activity makes the situation worse and worse. It makes harder and harder to implement the austerity measures in heavily indebted countries, and therefore increases the uncertainties on the future of the Eurozone as well.

In order to get out of this vicious circle, it would be essential to have the famous cake (a trustworthy budget regulation on short and medium term), and eat it at least just a bit (a small and immediate economic stimulus to get out of this stagnation).

Unfortunately, at the moment no conventional reaction is available. The European Central Bank should completely reverse its policy of rate normalization (at the moment already suspended). And yet this policy makes the ECB interventionism in the extraordinary buying of the troubled countries' government bonds politically more tolerable. As far as a fiscal stimulus policy is concerned, besides the fact that it requires long time and may have doubtful results, it may also turn out to be self-defeating if implemented right in the middle of a debt crisis.

An institutional resource - suitable to offer a swift slowing down of the fiscal grip and at the same time a long-term regulation - exists, but yesterday, in their joint announcement, Merkel and Sarkozy have rejected it.

We are talking about the guidelines suggested in 2010 by the think tank Bruegel, consisting in issuing common Eurobonds in accord with a share of the national public debt. The original proposal, different from Eurobonds, concerned joint European bonds up to a threshold of 60 % of each country's public debt.

That threshold at first was too high: today it would be more reasonable to hypothesize a lower level, such as 30-40 % of GDP. These triple "A" bonds would surely lower the burden of all the indebted countries, and would immediately boost the economies with a well-built stimulus. Besides, they would become a tangible sign of the widespread political strength of mind, suitable to disperse all uncertainties about the solidity of the Euro. Last, but not least, they would keep the long-term regulation of the indebted countries which would keep on paying high rates on the rest of their debt and have an incentive to bring it down to the threshold of the new bonds.

Should we begin with a lower threshold such as 30 %, it would be possible to set a mechanism-magnet of incentive and integration into motion: the best the fiscal improvements, the more the common bond threshold could be raised in relation to GDP, up to the desired goal of 60%. All German objections would fail, when faced to this formula. While the Bundesbank estimates that Germany should pay 7 billion Euros a year to convert the European debt on the whole in Eurobonds in terms of a more expensive service of the German debt ( the medium rates would increase), with a lower threshold the German rate could even get lower, thanks to the new bond liquidity and to the bigger certainty about the Eurozone future.

As for the very indebted countries, which lack quality in politics, the above mentioned mechanism-magnet would help both the decision makers and the public to look forward the real advantages of having the budget balanced as soon as possible. (traduzione di Adam Thompson)

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