EU Considering Sale of Euro Bonds

Posted August 19th, 2011 at 11:30 am (UTC-5)
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The European Union is considering the sale of euro bonds supported by the entire 17-nation bloc as a way to strengthen the finances of the continent's debt-plagued governments.

The European Commission, the EU's executive arm, said Friday it is studying the issue, but gave no timetable for completion of the study or when the bond sales could possibly occur.

Germany, with the EU's strongest economy, has been the most vocal opponent of the sale of euro bonds.

German bonds are the EU's benchmark for financial security and sell at far lower interest rates than those of other European governments. As a result, the German government's borrowing costs are sharply lower than other European countries, even a bit lower than for France, which has the same top AAA credit rating as Germany.

German officials fear the sale of euro bonds backed by the entire bloc of nations would markedly increase its borrowing costs, possibly by more than $67 billion a year. Euro bonds would almost certainly carry higher interest rates to account for the weaker finances of Greece, Ireland, Portugal and other governments that employ the common euro currency but are faced with burdensome debts.

German Chancellor Angela Merkel said Thursday that euro bonds are “not the right answer” to solving the continent's debt problems.

Sale of euro bonds would, however, likely lower the borrowing costs of the debt-laden countries, and possibly give the EU as a whole more financial stability. The continent's stock markets have suffered major losses this month. Investors have sold their holdings on fears that more countries beyond Greece, Ireland and Portugal might also need international bailouts, and that the continent's banking system is too weak to handle more bond purchases from debtor nations.