Peripheral euro-area countries desperately need lower funding costs, and one of the most effective ways of bringing them about is to mutualize eurozone debt though common issuance, said Steven Major, the global head of fixed-income research at HSBC Holdings Plc.
Writing in the Financial Times, Major said the International Monetary Fund and three of the four biggest eurozone governments support such an approach; the roadblock is Germany, which has refused to consider eurobonds apart from broader moves toward greater political and fiscal union.
Two ideas should be explored at once, Major said: eurobills, debt with maturity of less than a year, and use of the European Redemption Fund to finance sovereign debt above 60 percent of GDP under strict conditions.
Both eurobills and the ERF might get round the requirement for European treaty change and be acceptable to Germany’s constitutional court, Major said.
Mutualization of debt would push up German bond yields from their current low levels; however, if the eurozone broke up, Germany might face a bill of as much as 400 billion euros, he said.