Eurozone bond idea being studied

Supporters of the European bond idea say it will bolster the euro

Eurozone finance ministers may consider creating a common government bond to help reduce borrowing costs.

The idea may be on the agenda at Monday evening’s meeting of the ministers, called to discuss Europe’s debt crisis.

Supporters of “E-bonds” argue they would help protect eurozone countries from speculation and attract new capital flows into the region.

But Germany is thought to be sceptical of the idea, which it believes could only work with closer integration.

Key proponents of E-bonds are Jean-Claude Juncker, Luxembourg’s prime minister and chairman of the eurozone finance ministers group, and Giulio Tremonti, Italy’s finance minister.

They set out their argument in an article in the Financial Times, calling for the creation of a European Debt Agency (EDA) to issue what they say would be secure, highly-rated bonds.

They wrote: “The European Council could move as early as this month to create such an agency, with a mandate gradually to reach an amount of outstanding paper equivalent to 40% of the gross domestic product of the European Union and of each member state.

“We believe this proposal provides a strong, credible and timely response to the ongoing sovereign debt crisis,” the pair wrote.

However, the idea appears to have powerful opposition in Germany. Its finance minister Wolfgang Schaeuble said it was unworkable “without fundamental changes” in the European Union.

Germany believes the current system, under which countries issue their own bonds, imposes some fiscal discipline on members – and punishes them when they step out of line.

The finance ministers’ meeting was called to approve a draft directive aimed at strengthening cooperation on tax evasion and tax fraud.

The meeting will also discuss bank levy schemes.

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