Bonds Away

In Banking World, Call for Euro Bonds Falls on Deaf Ears

Martin Blessing XX
Martin Blessing, the Commerzbank CEO, found little support for his plan to back euro bonds.
  • Why it matters

    Why it matters

    The proposal by Commerzbank CEO Martin Blessing backing eurobonds has reignited — perhaps only briefly — debate in Germany over sharing debt obligations.

  • Facts


    • The CEO of Germany’s No. 2 bank supports creation of eurobonds.
    • The German government and CEO of Deutsche Bank do not.
    • The proposal by Commerzbank’s Martin Blessing has reignited debate on the issue.
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Martin Blessing, chief executive of Germany’s second-largest bank, Commerzbank, is known for his penchant to provoke people. His call in a guest column in Handelsblatt on Wednesday for the introduction of common government bonds among euro zone countries did the trick, reigniting a debate that many thought had long been buried.

Would common euro bonds seal the deal on an economic union for Europe once and for all, or are they merely an easy way out for countries stuck in the euro’s ongoing debt crisis?

That question has been on the minds of European leaders for the last four years, ever since a government debt crisis in Greece, one of the euro zone’s smallest and poorest members, provoked a wave of contagion that spread throughout the currency zone.

Mr. Blessing’s proposal for the partial mutualization of European debt fell with a thud in European capitals. The German government response to Mr. Blessing’s was particularly harsh.

“Instead of dealing with an issue at the worst possible moment, Mr. Blessing should concentrate on his function as chairman of the board,” said Steffen Kampeter, the parliamentary state secretary in the German Finance Ministry.

Chancellor Angela Merkel’s office also gave Mr. Blessing’s proposal short shrift, her spokesman Steffen Seibert saying: “This issue isn’t up for debate for us,” he said.

The German chancellor has said the introduction of eurobonds — which would commit German taxpayers to repay the debts of other euro zone countries — would not happen in her lifetime. But some economists argue that a German commitment would end existential questions surrounding the euro’s future.


euro crisis_revised


There is a sense that the debate over issuing joint bonds in the currency bloc has come and gone. Germany has opposed putting more taxpayer money on the line for other European countries, while France remains unwilling to surrender the kind of fiscal sovereignty that could tip Germany into backing a common debt approach.
”Euro bonds are not on the agenda. We don’t need any such fundamental debates right now,” Pierre Moscovici, France’s former finance minister and a top candidate to become the next European commissioner for monetary affairs in Brussels, told Handelsblatt.

Views in the financial world, which gathered in Frankfurt on Wednesday for an annual Handelsblatt-sponsored conference entitled ”Banking in Crisis,” were more mixed.

“The ECB is not fundamentally against euro bonds,” said Sabine Lautenschläger, a member of the European Central Bank’s executive board. But she added it is also important to keep incentives for governments in place. “National governments must continue to feel the pressure to implement structural reforms.”

Anshu Jain, the co-chief executive of Deutsche Bank, Germany’s largest bank, was more skeptical, arguing that markets had forced national governments that had borrowed too much money to confront their high debt levels over the last four years.

“Instead of dealing with an issue at the worst possible moment, Mr. Blessing should concentrate on his function as chairman of the board.”

Steffen Kampeter, Parliamentary State Secretary, German Finance Ministry

”I think the discipline which market borrowing imposes on you is a very, very important force,” Mr. Jain said. ”I quite like the system that we currently have.”

But Mr. Blessing believes that it is precisely these incentive systems that have stopped working in Europe, and that the Europeans must urgently think of better ways to prod countries into taking the kinds of structural reforms needed to restore growth on the continent.

Responding to Mr. Jain and his other critics on Wednesday, he said: ”If everyone always behaved correctly while on the road, we would no longer need traffic regulations or traffic lights.”

Mr. Blessing argued the fundamental problems of the euro crisis haven’t been resolved yet. As a result of European Central Bank President Mario Draghi’s promise in the summer of 2012 to do ”whatever it takes” to save the euro, Mr. Blessing noted the interest rates euro zone governments pay to borrow money is once again very low.

“These countries are no longer under any pressure to move forward with structural reforms,” Mr. Blessing said.

Mr. Blessing argued the aim of his concept is precisely to ensure that investors will demand significantly higher returns from debt-ridden countries than from countries with healthier budgets.

Under Mr. Blessing’s proposal, euro zone countries should only issue common debt up to a threshold of 25 percent of economic output. Each country would then have to borrow additional funds for its own account and in the worst case would even be forced to declare bankruptcy, an important caveat for Mr. Blessing.

Many German economists and bankers on Wednesday backed the concept in principle, but said it is simply unrealistic.

Germany has long insisted on a quid-pro-quo: European governments need to give up more fiscal power to European institutions, and only then could you think about issuing joint bonds. France and others have steadfastly refused.

Mr. Blessing’s proposal for the partial mutualization of European debt fell with a thud in European capitals. The German government response to Mr. Blessing’s was particularly harsh.

”As long as the sovereignty for fiscal policy remains almost exclusively at a national level, we shouldn’t strengthen common liabilities for Europeans,” said Marcel Fratzscher, head of the Berlin-based DIW economic institute, but that’s not to say the idea has no merit. “It would reduce fragmentation of financial markets in the Eurozone, lessen dependence between banks and governments, and even make the euro more attractive as a currency.”

Annika Falkengren, chief executive of Swedish bank SEB, said she believed it was still too early to talk of Eurobonds – further progress on fiscal union was needed first. Her fellow banker Roland Boekhout, head of Dutch-German bank ING-Diba, said it was “certainly a good idea in the long term” but said it was not likely to happen for at least 2-3 years.

Even 2-3 years might be optimistic. But if it does come to pass in the near future, euro bonds could turn Mr. Blessing from provocateur into prognosticator.




This article was translated by Christopher Sultan. Jens Münchrath, Jan Hildebrand, Peter Köhler and Regina Krieger contributed to this story. To contact the author: 

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