Think-tank proposes short-term euro zone bond fix

Sun Nov 27, 2011 6:08pm EST
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By Paul Taylor

BRUSSELS (Reuters) - Euro zone states should pool their short-term borrowing via a joint fund to enable countries pursuing EU-approved policies, but unable to borrow at normal rates, to access affordable funding, a European think-tank panel proposed on Monday.

A group of bankers, economists and market experts from the European League for Economic Cooperation suggested an EMU Bond Fund as a bridging solution to the euro zone's sovereign debt crisis, aimed at restoring market confidence.

"Our modest proposal is designed to provide a limited degree of mutual support that will be sufficient to allow adequate time to states that are themselves trying to restore their competitiveness," the authors wrote.

"If the euro zone demonstrates that it is on track to meet these initial economic (and political) goals of renewed competitiveness and sound public finance, then its individual members will have a compelling story to tell the investors of the world."

The fund, which would last only four years, would complement moves to instill stricter fiscal discipline and economic reform in the European Union. It would be open to all euro area states whose policies had been approved by the European authorities.

EU paymaster Germany has so far rejected all proposals for joint bond issuance, arguing that it would remove the market incentive on governments to implement painful austerity measures and economic reforms.

Berlin, backed by the Dutch, Finns and Austrians, is also concerned that common euro zone bonds would increase its own cost of borrowing.

Chancellor Angela Merkel has said common bonds could only come at the end of a process of fiscal integration, but the proposal suggests an immediate solution to get over the crisis threatening the survival of the euro zone in its current form.   Continued...