Germany accepting transfer union?

Scofflaw

Interested to see this one in the IT:

Berlin opens door to bond-buying EU rescue fund

SENIOR BERLIN officials have conceded that Germany is prepared to allow the permanent euro zone rescue fund to buy up sovereign bonds, a move that would shatter a taboo in German relations with the EU.

Almost a year after breaking one German taboo to bail out Greece, Chancellor Angela Merkel opened the door in public yesterday to a position her officials have already conceded in private: a so-called “transfer union” allowing a permanent flow of subsidies from richer to poorer EU member states.

Asked if she supported allowing the European Stability Mechanism (ESM) to buy up sovereign bonds, she said: “I can’t say yes or no, it depends on the construction.”

She insisted the measure cannot be incorporated into the temporary fund (the EFSF) that runs until 2013. “Under no circumstances can we have [bond-buying] under the EFSF . . . But I’d like that things are different in the ESM.”

If this actually is on the cards, it represents an enormous change in the underlying dynamics of the EU.

cordially,
Scofflaw

Denerick

Firstly the present bail out packages are a loan, not a grant. Hence they aren't exactly 'transfer spending'. Secondly the EU has been a transfer union right since the beginning, with a few big countries acting as net contributors and the majority of countries (Like ireland) benefitting from net earnings. So I don't think any underlining dynamics have really changed.

There is a perception in the German media (I'm a bit of a Teuton really, have always admired German industry and hard work) that they are writing checques left, right and center with the EFSF and getting nothing in return; its simply untrue.

Scofflaw

Denerick wrote: »

Firstly the present bail out packages are a loan, not a grant. Hence they aren't exactly 'transfer spending'. Secondly the EU has been a transfer union right since the beginning, with a few big countries acting as net contributors and the majority of countries (Like ireland) benefitting from net earnings. So I don't think any underlining dynamics have really changed.

There is a perception in the German media (I'm a bit of a Teuton really, have always admired German industry and hard work) that they are writing checques left, right and center with the EFSF and getting nothing in return; its simply untrue.

It's not really so much about what's happening now with the EFSF and the EFSM - as you say, that's a loan - but about whether the proposed ESM (European Stability Mechanism) will have a sovereign bond purchasing role.

cordially,
Scofflaw

Denerick

Scofflaw wrote: »

It's not really so much about what's happening now with the EFSF and the EFSM - as you say, that's a loan - but about whether the proposed ESM (European Stability Mechanism) will have a sovereign bond purchasing role.

cordially,
Scofflaw

Sorry, probably misinterpreted what you were saying.

later12

But the ECB are already doing this. It is quite a ridiculous state of affairs when you have grown ups allowing a body like the ECB whose remit is monetary, engaging in what is essentially fiscal policy. A change must be brought about if the European institutions can be taken seriously.

The ESM should be allowed to buy up sovereign bonds. Such a thing would really be a precursor to (in my opinion) the, hopefully, inevitable Eurobonds. I am not quite convinced that it would amount to a transfer union, however, depending particularly on how corporate debt is pulled out of the equation over the next 18 - 24 months.