What is a eurobond?Just an idea, for now. It's a scheme in which all 17 member states of the euro zone would collectively guarantee the zone's debt. Under the current system, each government raises cash by selling investors securities known as bonds, promising to pay back that investor – be it a pension fund, an insurance company or a private individual – at a fixed rate over a specific period. A common eurobond would work in the same way, except that the risk would be pooled among 17 states. Some think this could resolve Europe's debt crisis.
A big claim. Convince meThree euro zone countries, Greece, Ireland and Portugal, have already had to stop issuing bonds and take bailouts from Europe because their cost of borrowing went through the roof. Much bigger states such as Italy and Spain are now also finding it increasingly expensive to borrow from markets. At the same time, however, prudent, budget-balancing Germany is able to borrow at its cheapest interest rates since the second World War, because markets see it as the safest place in Europe to put cash. Eurobonds, by in effect forcing Germany to underwrite the debt of its euro zone club-mates, would bring down the cost of borrowing for the weaker economies and thus ease the pressure on the whole bloc.
How likely is it to happen?Eurobonds have plenty of influential supporters. Giulio Tremonti, Italy's finance minister, described them as a "master solution" to the crisis. The investor George Soros is a firm advocate, and France sees it as the inevitable culmination of a process of closer integration in the zone. The European Commission has said it will soon table proposals for the introduction of joint bonds. But while the commission initiates EU laws, the member states have the final say, and Germany is implacably opposed. Berlin's cost of borrowing would rise if jointly-issued bonds were in use, but its opposition is primarily down to its aversion to allowing errant states a free ride before they put their houses in order through sharp deficit cuts.
So once Germany can be talked around, we're out of this mess?No. The idea would be acceptable to stronger countries only if accompanied by new ways to force states into good budgetary behaviour. That would certainly require more intrusion into national decision-making – a controversial step in many countries. A eurobond would also involve changes to some national constitutions and to the EU treaty. So the process would take years, and it might not be enough to save the euro.
What would eurobonds mean for Ireland?The Government has said it's open to the idea, knowing Ireland would benefit from a lower cost of borrowing, but it wouldn't find the process painless. Changes to the EU treaty would open the prospect of yet another referendum. Powerful member states won't agree to eurobonds without much closer economic integration, and France has said the elimination of tax competition would be a key condition. "C'est fini," Taoiseach Enda Kenny said after France relented in the recent stand-off over Ireland's low corporate tax rate. Not quite.
