No doubt the German government is drawing up contingency plans amidst the alarmingly rapid deterioration in eurozone financial affairs over the last few weeks. The German Chancellor has firmly rejected Eurobonds (for the time being), she is dead against ECB money-printing and only accepted the expansion of the EFSF’s fire-power under strict conditions. What Angela Merkel has fully endorsed is proposals to strengthen fiscal probity within the eurozone - which will force all members to submit draft budgets to the EU before they are discussed in the local parliament - and empower the European Court of Justice to impose fines/sanctions on fiscal miscreants. This then is eurozone fiscal union, German-style.
Interestingly, German newspaper Die Welt published a story this morning claiming that Germany was looking into the issuance of so-called ‘elite’ bonds. Under this proposal, Europe’s top six sovereign credits (Germany, France, Finland, the Netherlands, Luxembourg and Austria) would jointly issue bonds to fund their own debts, but also potentially to provide financial aid to the likes of Spain and Italy. An intriguing proposition, although how much traction it gets remains to be seen. Given the deterioration in the financial standing of both France and Austria recently, a situation which is only likely to worsen over time, Germany may find that it is forced to narrow the list participants if this idea ever gets off the ground. That said it could be a baby-step on the road to Eurobonds.