From Market Watch:
Italy’s economy minister has said that a solution to the euro zone’s current debt crisis would be the creation of euro bonds, according to a report published Saturday.
Reuters reported that Giulio Tremonti said that such bonds would have prevented the continent from reaching the point it has, with Greece, Ireland and Italy among countries pushing through austerity measures in the hope of avoiding sovereign defaults.
Tremonti said joint-issued bonds would make nations’ debt a shared burden, and was quoted by Reuters as saying that they would be “master solution” to the crisis…
It is actually a way of making Germany a co-signer on Italy’s debt…and Spain’s and Portugal’s and Greece’s, etc, etc etc. I’m not enough of a finance guy to figure out exactly how such a thing would play out, but I do know enough to understand that Germany cannot underwrite the bad debt of the Eurozone. This may well plug the leak, but only for a few months…and you’d have to get German taxpayers to agree to put their stellar bond rating on the line for Italy and the rest of the PIIGS. That is a dicey proposition, at best.
In the end, the fact remains that the PIIGS (Portugal, Italy, Ireland, Greece and Spain) owe far more than their economies can pay back . There is no way to make up for this deficit between debt and wealth…either by printing money (and thus devaluing the currency) or by straight default, those who hold the bonds of the PIIGS will have to take a loss. There may be a way to soften the blow, but the blow must fall…default (straight up or disguised) absolutely will happen.