By Nils Pratley

Markets bounced on Tuesday as the magic word “eurobonds” was heard — new French president Francois Hollande is keen and Christine Lagarde at the International Monetary Fund has endorsed the principle of more debt-sharing in the eurozone. Today share prices are down partly because investors have remembered that we’ve been round the houses on eurobonds several times already during this crisis and the debate always comes back to the same point: Germany is reluctant to underwrite the debts of its neighbours. That reluctance looks entrenched as ever, whatever Hollande and Lagarde might wish.

In what circumstances might German budge? Gary Silverman of Swordfish Research has the answer — “only at one minute to midnight if the alternative was a complete collapse of the system.”

That is surely correct. There was an almighty struggle within the German parliament even to get the current fire-fighting funds, such as the European Stability Mechanism, equipped with commitments. Eurobonds are of another order altogether. In their purest incarnation as a full sharing of debt among eurozone members, they imply a pan-eurozone treasury and something close to full fiscal and political union. Without those ingredients, Germany will continue to regard eurobonds as “the equivalent of ringing the bell for a happy hour so the inebriated can postpone their hangover indefinitely,” as Reuters quotes one EU official as saying.Of course, Germany is deluding itself

full article at source: http://www.guardian.co.uk/business/nils-pratley-on-finance/2012/may/23/why-germany-doesnt-want-eurobonds?newsfeed=true

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