The euro rallied, then gave back its gains, U.S. stocks are off their highs...France's Sarkozy, in a joint press conference with Germany's Merkel, has taken the high road.
He is laying the ground work for a closer fiscal union by asking all 17 nations of the euro zone to enact a balanced budget requirement in their constitutions by next summer...they are also proposing a Euro Zone Economic Council. What is this? It would be the heads of state that would meet twice a year, and more often if necessary.
They are also indicated that the size of the EFSF is sufficient, which traders clearly do not.
He is putting off euro bonds to some point in the distant future, as indeed he should.
The European electorate clearly does not understand the full implications of euro bonds. To create these bonds would require the creation of an agency to guarantee them. European countries would essentially create a supra-national entity and surrender much of their sovereign power. The bonds would be at a higher yield than Germany currently pays; Germans would certainly pay higher taxes to transfer wealth to southern countries that they view as profligate.
But the biggest problem is philosophical: who is this supra-national agency responsible to? How do voters vote them up or down? This euro bond proposal will take much discussion and should not be done hastily.
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