There's an intriguing idea making the rounds in the Eurozone: issue Eurobonds backed by all the nations participating in the currency union, but only up to the amount stipulated by the Maastricht Treaty cut-off, i.e. 60% of GDP.
In rough numbers, this amounts to a range of 3.8 - 4.8 trillion euro, depending on what is included in the definition of government debt (e.g. bonds, loans, guarantees, etc.). Obviously, this will not be new debt; it will merely replace existing debt with new securities backed by the group of nations, as opposed to each nation individually. According to this proposal, a prerequisite will be that each country will implement constitutional reforms for its economy and fiscal policy.
I like this idea. It is a major step towards fiscal integration (for the n-th time: there can be no currency union without fiscal union) and a credible solution to the EU's debt crisis - a crisis that seriously threatens to split the entire EU apart. Assuming, of course, that it is implemented rationally and does not end up being just another way to ramp up debt.
Something is finally shifting in the EU: the freaky Greek politics and - more importantly - the election of Francois Hollande in France, plus the dismal showing of Frau Merkel in local German elections is maybe, just maybe, forcing hardcore European deflationists to yield a bit on their dogmatic stance.
In any case, I hope so...
