Thoughts on why Starmer kissed Trump's ass, Merz's unfortunate start, can the euro grab some exorbitant privilege, who's afraid of German rearmament, and who wins from Trump's Cultural Revolution-lite
The key role that a common euro-wide debt could play in positioning the euro as a more credible rival to the dollar is a very important point. Besides the political appetite for common debt issuance, I think a very interesting question is how that would balance with / play off against the massive legacy stock of country-specific debt. Maybe (and in my view perversely) an argument for accelerating and issuing as much common debt as possible as quickly as possible? (The key and tricky thing being how to define "possible"). Curious what your thoughts are on this. Thanks!
Sorry for the slow response, Marco. You raise an interesting point. Even in the most ardent euro-federalists's wildest dreams, I can't see euro debt being issued in sufficient quantities to negatively impact national debt. But I would expect the market to welcome common European issuance as evidence that the Europe was addressing its governance issues and tackling common challenges, thereby reducing common risks. To that extent, you might expect any exorbitant privilege the accrued to the EU to be extended to the member states too. The one caveat I would add is to echo Gentiloni's point quoted in my piece about the need for homogenous debt. The current array of issuers with different guarantees is definitely sub-optimal. Do you agree?
Thanks Simon, yes I do, at least in part. I also think the market would welcome common euro issuance as you suggest. I think we also agree that in a world which no longer exhibits a savings glut (and where the US deficit remains large), there's no room to have common euro issuance large enough to challenge the dollar's reserve currency role and side by side with large national issuance by EU countries. My remaining doubt is that if common issuance is not large enough to have a negative impact on higher-risk credits like Italy, its positive impact on market sentiment would also be marginal. (Of course, no-one is less qualified to predict market sentiment than an economist!) Now, if common issuance were to replace national issuance...but that remains inconceivable.
I suspect that it will be a challenge even to maintain outstanding issuance of EU debt even at current levels, given that NGEU bonds are supposed to be repaid rather than rolled over and Merz’s weakness, as demonstrated in last week’s Bundestag debacle, will make it politically almost impossible for him to back new common borrowing…
About brain drains... it would be interesting to know whether or not the UK is subject to one now. It seems to me that there is endless reporting and political to-and-fro about immigration into the UK, in which context we hear about "net migration" figures. But little or nothing is heard about emigration - who, how many, why and whether or not it matters.
Very much agree Jack. I had a similar thought this morning, hearing the latest demands for migration caps and even net zero migration. Will universities have to bid for a quota? There is even talk in the papers of universities being charged for foreign students. You can be pretty sure that the funds announced by Von der Leyen and Macron are also aimed at luring academics from Britain too...
The key role that a common euro-wide debt could play in positioning the euro as a more credible rival to the dollar is a very important point. Besides the political appetite for common debt issuance, I think a very interesting question is how that would balance with / play off against the massive legacy stock of country-specific debt. Maybe (and in my view perversely) an argument for accelerating and issuing as much common debt as possible as quickly as possible? (The key and tricky thing being how to define "possible"). Curious what your thoughts are on this. Thanks!
Sorry for the slow response, Marco. You raise an interesting point. Even in the most ardent euro-federalists's wildest dreams, I can't see euro debt being issued in sufficient quantities to negatively impact national debt. But I would expect the market to welcome common European issuance as evidence that the Europe was addressing its governance issues and tackling common challenges, thereby reducing common risks. To that extent, you might expect any exorbitant privilege the accrued to the EU to be extended to the member states too. The one caveat I would add is to echo Gentiloni's point quoted in my piece about the need for homogenous debt. The current array of issuers with different guarantees is definitely sub-optimal. Do you agree?
Thanks Simon, yes I do, at least in part. I also think the market would welcome common euro issuance as you suggest. I think we also agree that in a world which no longer exhibits a savings glut (and where the US deficit remains large), there's no room to have common euro issuance large enough to challenge the dollar's reserve currency role and side by side with large national issuance by EU countries. My remaining doubt is that if common issuance is not large enough to have a negative impact on higher-risk credits like Italy, its positive impact on market sentiment would also be marginal. (Of course, no-one is less qualified to predict market sentiment than an economist!) Now, if common issuance were to replace national issuance...but that remains inconceivable.
I suspect that it will be a challenge even to maintain outstanding issuance of EU debt even at current levels, given that NGEU bonds are supposed to be repaid rather than rolled over and Merz’s weakness, as demonstrated in last week’s Bundestag debacle, will make it politically almost impossible for him to back new common borrowing…
About brain drains... it would be interesting to know whether or not the UK is subject to one now. It seems to me that there is endless reporting and political to-and-fro about immigration into the UK, in which context we hear about "net migration" figures. But little or nothing is heard about emigration - who, how many, why and whether or not it matters.
Very much agree Jack. I had a similar thought this morning, hearing the latest demands for migration caps and even net zero migration. Will universities have to bid for a quota? There is even talk in the papers of universities being charged for foreign students. You can be pretty sure that the funds announced by Von der Leyen and Macron are also aimed at luring academics from Britain too...