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Divisions arise over Eurobond solution to crisis

By Ding Zhijie (People's Daily Overseas Edition)

17:23, November 25, 2011

Edited and Translated by People's Daily Online

The European Commission was scheduled to put forward a proposal on Nov. 23 on jointly issuing euro zone bonds, otherwise known as Eurobonds.

The European Commission has offered three options for issuing Eurobonds: All euro zone member states will jointly guarantee that the bonds issued by member states. The euro zone will issue Eurobonds to finance a certain percentage of government debt of member states, and the rest of the debt should still be tackled by member countries through bond issuances. The euro zone will issue Eurobonds to substitute all government bonds issued by member states.

Issuing Eurobonds has obvious advantages without technical barriers. Because the market lacks confidence in the ability of Europe’s most severely indebted countries to tackle serious debt troubles, the government bonds issued by the countries have continuously been sold off, with a constant rise in bond yields and bond issuance costs. This has resulted in continued deterioration, contagion and spread of the European debt crisis.

The cause behind the difficulties in issuing Eurobonds lies in the differences among euro zone member states. Issuing Eurobonds is a type of bailout that asks members states with relatively high sovereign credit ratings, such as Germany and France, to offer guarantees to the crisis-ridden member states.

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