Launched January 1, 2001 to create a stronger and more stable European economic union, the euro experiment is failing. To save it, member nations must go beyond a common currency and embrace a common economy by issuing a common interest euro bond.

The ongoing crises in the Eurozone demonstrate the problems with having seventeen countries tied to the same currency while running seventeen separate fiscal policies. Mechanisms to establish common rules, such as the Broad Economic Policy Guidelines and the Stability and Growth Pact, are not binding and often not followed. This encourages beggar-thy-neighbor policies with the responsible forced to bail out their profligate brothers or go down with the ship.

Euro bonds would address this problem by easing borrowing rates for debtor countries like Greece and Portugal, and in return raising respective rates for the stronger nations in the region like Germany and France. The interest rates reflect the risk of the bond purchaser in lending their money to a designated nation. This is why higher credit rated nations like Germany receive a lower interest rate as opposed to lower rated Greece which needs the high interest rates to compensate for bond purchasers’ lower confidence in the nations ability to compensate them for the bond.


Euro bonds would cause higher rated euro zone nation’s borrowing rates to rise and lower rated euro zone nation’s rates to fall because the higher rated nations would be backing lower rated nation bonds. For example, since Germany would be paying out higher interest rates on its bonds, the German Federal Budget’s assumes extra costs, estimated to equal EUR 2.5 billion the first year, EUR 5 billion the second and EUR 20-25 billion by the tenth year. For this reason German Chancellor Angela Merkel and French President Nicolas Sarkozy are opposed to the use of euro bonds today. Merkel especially would rather focus on further integration of the euro zone and in doing so buy Germany a few years to allow the other nations to partially recover. After which point Merkel is willing to discuss euro bonds since debtor nations have lower interest rates. But the hole in Merkel’s plan is that the debtor nations may not recover without euro bonds. 

Despite encouragements from the euro zone and the international community at large, Germany refuses to release the reins of its anti-euro bond sector. Hence, euro bonds have been avoided and as a consequence Italy, Spain and the rest of the euro zone have fallen victim to the debt crisis. Italy’s Finance Minister, Giulio Tremonti, believes “If we had had euro bonds, we would not be where we are today.” Tremonti trusts that the way forward is with AAA-rated Luxembourg Prime Minister Jean-Claude Juncker’s euro bond model and that without this or similar further action “difficulties will continue.” 

Germany may have a seemingly large monetary cost from issuing bonds with 0.8 percentage points higher than that of its personal bonds, called for today’s euro bond issuance, but it is still insignificant in comparison to the benefits received over the past decade by sharing in the common currency of the euro. Since the euro was adopted by Germany, its Gross Domestic Product (GDP) has increased by over 43 percent and is now experiencing a nineteen year unemployment low. So after calling all gains and losses into account, Germany is in debt to the euro zone for considerably more than it is being asked to forego for euro bond issuance. Germany would only have to endure a small short-term monetary loss for a major long-term economic gain.

Didier Reynders, Belgium’s finance minister, postulates the euro crisis can be resolved by utilizing euro bonds in conjunction with a further expanded bail out fund, last adjusted to EUR 440 billion (USD 633 billion) on July 21. Reynders justifies this claim by reminding Germany (coupled with other geographically central euro zone nations) of uneven export advantages over debtor, or periphery, euro zone nations. Germany’s exports have increased by over 55 percent since 2002, when the Deutsche Mark ceased to be legal tender. These central euro zone nations hence gain the most from the shared currency and should justly be willing to assist at a higher degree in these times of financial turmoil. A perspective shared by Nobel Prize winning economist Joseph Stiglitz, who claims if Germany’s stubbornness continues, and “Europe decides that the only way it’s going to continue is through some stabilization or solidarity fund in the form of euro bond, which Germany doesn’t want, than it will be Germany that has to leave” the euro.

Additionally, Stiglitz’ predicts without euro bond promotion “it’s going to be very difficult for the troubled euro zone countries to be able to meet their financial requirements.” Prime Minister Junker’s backing of euro bonds specifically calls for the use of joint-issuance euro bonds.

These joint-issuance euro bond models quell a common fear supported by individuals including Philipp Röster, the economy minister and EDP chairman, who do not trust debtor nations to maintain appropriate austerity measures with euro bond use. But with joint-issuance euro bonds there exists a percentage of bonds which maintain the nations own interest rate, so by keeping in check austerity measures they will be rewarded with the future luxury of lower interest rates.

Furthermore, euro bonds not only provide a plausible solution to the current euro debt crisis, but they could act much faster than the financial integration focused plan supported by Merkel and Sarkozy. This is due to the inability for integration to solve the debt crisis. It will in fact be helpful for the euro zone’s future joint economic prosperity, but will not help debtor nations resolve their financial dilemmas. A rapid resolution to the debt crisis is in the euro zone’s best interest since markets have usually been poorly affected by Merkel-Sarkozy talks. This is demonstrated by the market downfall following the unsuccessful Merkel-Sarkozy debt talks on August 17, Deutsche Boerse fell 4.4 percent and the London Stock Exchange was down 2.8 percent after a release of a possible European Financial Transaction tax. These market disturbances contribute to the damage of the wider economy.

Wolfgang Schaeuble, German Finance Minister, agreed with the necessity of rapid fix in a Sunday interview, “Our mission here and now…is to solve the problems as quickly as possible.” Currently euro bonds provide a faster resolution to the crisis than any other action taken or proposed due to the real help it directly affords debtor euro zone member nations.

The pooling of euro zone member nations’ borrowing risk with some framework akin to euro bond is now the most efficient and capable method to resolve this debt crisis alongside establishing common economic policy. The euro zone is not only currency sharing, but economically dependent upon its member nations. The zone rose together at the turn of the millennium and it is sure to fall together shortly after if appropriate action is not taken. Without the benefits provided by the euro, each individual euro zone economy will contract, thereby compounding issues of economic instability and thwarted national growth.

Max Hirsch is an intern with the Atlantic Council and contributor to its web publication, New Atlanticist. He is currently pursuing a BA in Economics at Northwestern University’s Weinberg College of Arts and Sciences.