Level the yields on the bonds of Italy and Spain below 5% with the savings on the interests accumulated by the countries of northern Europe. Greece, Portugal and Ireland would instead remain under the protective umbrella of the EFSF and the ESM. This is the proposal of Friedrich Heinemann, an economist at the Zew research center in Mannheim. It is an alternative version to Eurobonds capable of stabilizing the markets along the lines of the ECB purchase program endorsed in May 2010. But with one difference: the new project would have the advantage of not compromising the monetary policy objectives of the Eurotower, avoiding the need to print money.
In particular, Heinemann suggests the establishment of a fund called Fire (Fiscal Interest Rate Equalization) to which only low-yielding monetary union member states (i.e. Germany, the Netherlands, Austria, Finland and Luxembourg) would contribute for a limited period of time (six months or a year) and for a limited amount (this would be a figure just under 6 billion euros). Berlin would have to finance about 90%. According to Heinemann, the differential between the yields of German government bonds and those of peripheral countries is no longer justified by public finance fundamentals, but is due to a generalized panic on the markets.
In the course of his communication to the Bundestag on the results of last Friday's European Council, Chancellor Angela Merkel also recalled that in the light of the reform efforts supported so far by the governments of Italy and Spain, it is necessary to be able to influence the excessively high interest rates. Hence the agreement in principle for a so-called "anti-spread shield", the functioning of which, however, has not yet been fully clarified. In this regard, Zew's proposal could then help, which undoubtedly has the advantage – for the Germans – of not putting in place a lasting hypothesis of debt sharing between the countries of the euro area.
Moreover, the creation of a similar fund would not be conditional on the provision of guarantees by the lending states and the costs would materialize immediately, without burdening future generations. It would certainly be a buffer measure, reversible at any time, whose chances of success should be measured in relation to the amount of public bonds purchased. The feeling is that, just like in the case of the Securities Market Programming of the ECB, the purchases may however be insufficient to calm the markets.
All the more so if, as Heinemann suggests, one of the five lender countries maintains a veto power, to be exercised in the event that Rome and Madrid interrupt the reform process. The fact remains that, after the proposal of the five economic sages for a redemption fund, Germany continues to discuss lively ways to stem the risk of an implosion of the Eurozone.
