German Finance Minister Wolfgang Schauble will meet his French colleague François Baroin today to propose measures aimed at overcoming the debt crisis in the euro zone. At the center of attention will be the possible tax on financial transactions (Tobin tax) and the issuance of Eurobonds. The Bank cThe European Central Bank (ECB) said it spent 14,29 billion euros last week to buy European government bonds and calm the markets. But the names of the countries involved have not been disclosed. Many observers believe it is Spain and Italy. Across the pond, hopes that Ben Bernanke will start printing new money soon, announcing a new QE3 in his speech on Friday, have lifted commodity markets.
German Chancellor Angela Merkel has rejected the euro zone bond option in recent days as a way out of the debt crisis, saying she won't allow the financial markets to dictate the Union's policies. However, the European Commission has not ruled out the eurobond option, thus putting the executive arm of the EU in conflict with Merkel. This came at the same time as the Bundesbank criticized the German Chancellor for approving the bailout plan for Greece on July 21, thus making all European states liable for each other's debts.
The European Commission said yesterday it could present a draft law on Eurobonds, together with a report on the sustainability of the idea. "The report, if appropriate, could be accompanied by some legislative proposals," said Olli Rehn, the commissioner for European economic and monetary affairs.
If Merkel continues to be against the idea of eurobonds, some commentators believe a smaller "euro core" will emerge, led by Germany and another group of economies. Peripheral countries, such as Ireland, Portugal and Greece, would then have to leave the zone. This is the prediction of Mohammed El Erian, CEO of Pimco, the world's largest bond fund.
The crisis was exacerbated yesterday with Finland's insistence that any aid it gives Greece must be accompanied by collateral. The Finns want the Greeks to deposit the money in their bank accounts as a form of guarantee. Rating agency Moody's said the measure would negatively affect Greece and other eurozone states at risk, such as Ireland. Austria, the Netherlands and Slovakia have said they also want collateral in their loans to Greece, but Greek ministers have said they will not consider any country other than Finland for such a deal.
