You have to hand it to George Soros. When he goes for it, he hits the target big.
Look at this speech arguing that the introduction of Eurobonds is by far the best way to solve the Eurozone's (and EU's existential crisis).
I myself have no idea what a Eurobond looks like or why it might or might not work. But what I like about this presentation is the way he comes across as taking seriously a good many alternative arguments (both substantively and politically) and working through them in terms most reasonably expert people might understand:
Germany is opposed to eurobonds on the grounds that once they are introduced there can be no assurance that the so-called periphery countries would not break the rules once again. I believe these fears are misplaced. Losing the privilege of issuing eurobonds and having to pay stiff risk premiums would be a powerful inducement to stay in compliance. Indeed the penalty would be so painful that the rules would have to call for small doses in order not to aggravate the offending country's financial position too abruptly. At the same time a the fiscal authority in charge would exercise stricter controls and disobedience would be punished by further reductions in the amount of eurobonds allowed to be issued. No government could resist such pressure...
Guarantees have a peculiar character: the more convincing they are, the less they are likely to be invoked. The US never had to pay off the debt it incurred when it converted the debt of individual states into Federal obligations. Germany has been willing to do only the minimum; that is why it had to keep escalating its commitments and is incurring actual losses. The fiscal compact, backed up by a well functioning fiscal authority would practically eliminate the risk of default. eurobonds would compare favorably with the bonds of US, UK and Japan in the financial markets.
Admittedly, Germany would have to pay more on its own debt than it does today but the exceptionally low yields on Bunds is a symptom of the disease plaguing the periphery. The indirect benefit Germany would derive from the recovery of the periphery would far outweigh the additional cost incurred on its own national debt.
The main limitation of eurobonds is that they would not eliminate the divergences in competitiveness. Individual countries would still need to undertake structural reforms. Those that fail to do so would turn into permanent pockets of poverty and dependency similar to the ones that persist in many rich countries. They would survive on limited support from European Structural Funds and remittances.
But Germany accepting eurobonds would totally change the political atmosphere and facilitate the structural reforms that are also needed. Reforms work better when trading partners are prosperous than in conditions of widespread decline. Eurobonds offer a promising environment to structural reforms that are also needed...
The rhetorical craftiness of this speech lies in the way he makes his preferred conclusion seem calm and reasonable by whittling down the arguments against it. He even throws in the heresy that maybe Germany should leave the Eurozone and allow the remaining countries to issue Eurobonds:
Obviously, it would be better for Germany to leave than Italy and equally obviously, it would be better for Germany to agree to eurobonds than to leave the Euro. The trouble is that Germany has not been put to the choice, and it has another alternative at its disposal: it can continue along the current course, always doing the minimum to preserve the euro, but nothing more.
If my analysis is correct that is not the best alternative even for Germany, except in the very near term. The situation is deteriorating and eventually it is bound to become unsustainable. The longer it takes, the greater the damage. Nevertheless, that is Germany's preferred choice, at least until after the elections.
There is a strong case for Germany to make a definitive choice whether to agree to eurobonds or to leave the euro. That is the case I came here to argue.
And this sense of his agonising over how far to speak out and when is also cleverly done:
I reflected long and hard whether I should present my case now or wait until after the elections. In the end I decided to go ahead, based on two considerations.
One is that events have their own dynamics and the crisis is likely to become more acute even before the elections. The Cyprus rescue proved me right. The other is that my interpretation of events is so radically different from the one that prevails in Germany that it will take time for it to sink in and the sooner I start the better
So he concludes in a generous 'reaching-out' way that allows those in Germany who might utterly disagree with him to change their minds graciously. He appeals to a human sense that yup, sometimes we just get things wrong, for the best possible reasons - if so it's OK to change course.
To state my own views, my first preference is eurobonds; my second is Germany leaving the euro. Either choice is infinitely better than not making a choice and perpetuating the crisis. Worst of all would be for a debtor country, like Italy, to leave the euro because it would lead to the disorderly dissolution of the European Union.
I have made some surprising assertions; notably how well eurobonds could work even without Germany. My pro-European friends simply cannot believe it. They can't imagine a euro without Germany. I think they are conflating the euro with the European Union. The two are not identical. The European Union is the goal and the euro is a means to an end. Therefore the euro ought not to be allowed to destroy the European Union.
But I may be too rational in my analysis. The European Union is conflated with the euro not only in popular narratives but also in law. Consequently the European Union may not survive Germany leaving the euro. In that case we must all do what we can to persuade the German public to abandon some of its most ingrained prejudices and misconceptions and accept eurobonds
I should like to end by emphasising how important the European Union is not only for Europe, but for the world.
The EU was meant to be the embodiment of the principles of open society. That means that perfect knowledge is unattainable. Nobody is free of prejudices and misconceptions; nobody should be blamed for having made mistakes. The blame or Schuld begins only when a mistake or misconception is identified but not corrected. That is when the principles on which the European Union was built are betrayed.
It is in that spirit that Germany should agree to eurobonds and save the European Union.
Pow! Always praise good technique.
But will it work? If I were a German, would I trust other tricksy EU countries not to find a way to freeload on any shared Eurobond system and send me the bill?
Probably not.
