tagged: debt, e-bonds, e-loans, euro bonds, eurozone, France, Germany, Greece, interest rates, interview Deutsche Welle, interview Deutschland radio, Ireland, Peter Bofinger, portugal, Spain

Economist Bofinger: Greece’s austerity plan unbearable – Eurobonds solutions

Posted by keeptalkinggreece in Economy

 ” Greeks will not endure the austerity program” predicts prominent economic advisor to the German government, professor Peter Bofinger, and indicates that  the euro-bonds could be the way to reward countries like Greece that struggle to relieve their debt. Bofinger, one of the 5 ‘wise men’ of the German economy, described as “unbearable” the Greek austerity program.

In an interview to German broadcaster Deutschland Radio, professor Peter Bofinger, speaking about Greece’s austerity measures, noted that  

 ”The program is stricter than the country can bear and it has long term results. Even if everything has a good outcome, unemployment will rise sharply in the next two years as the debt will, because under this plan, extra debt should be limited but the debt amount, that is the debt in relation to the growth rate , will increase remarkably.

With all these, Greeks will ask themselves in one-two years  if the sacrifice was worth it, and while the debt and the unemployment rise, whether it is advisable to stay in the euro zone.  I believe there should be thoughts and solutions so that Greece should overcome this difficult time. “

             Peter Bofinger

Regarding the issuing of  Euro-bonds (e-bonds, e-loans) with common interest rates across the eurozone, Bofinger said, the bonds would stabilize the eurozone:

“Issuing eurobonds would make it clear that the countries in Europe will remain solvent, and that it’s just no longer possible to push some countries into a corner and burden these countries with extremely high interest.

“The interest is so high in some countries because the risk of default is seen as being so high. With a eurobond, the likelihood of a country defaulting is highly unlikely, and so I think it would have much lower interest rates than the average.

Bofinger also said that issuing eurobonds would be a good way of recognizing the austerity measures that are being implemented:

“One has to acknowledge what is being done in Greece, Portugal, Ireland and Spain. These countries, which have really implemented very tough measures to try to stabilize the situation, they would be rewarded by allowing them access to financing with low interest rates.” 

Angela Merkel’s Seasons Greetings

In a speech to the German parliament last week, Chancellor Angela Merkel laid out her criticism of the idea.

“It’s really important that we don’t make the mistake of collectivizing risks, which would happen with eurobonds,” she said. “This is absolutely not a solution. The solution is more harmony and more competitiveness in the EU member states and especially in the eurozone.”

Germany and France oppose euro-bonds, not only fearing of losing their good reputation as debtor’s but also for having to pay higher interest rates themselves.

At the moment, Germany borrows at a rate of 1.73 percent, but the average borrowing rate across the eurozone is slightly above 3 percent. Some economists say that if eurobonds were introduced, Germany would end up paying more interest.

A eurozone bond could cost Germany 17 billion euros ($22 billion) more each year, the German newspaper Frankfurter Allgemeine Zeitung said.

Sources: Deutsche Welle (English), Eleftherotypia