September 15, 2011
Poor old President Barroso. He is in a right pickle at the moment.
As was reported in various places yesterday, he has little choice but to formally propose the use of eurobonds to try and shore up the eurozone debt crisis. Politically, this is possibly the most – and perhaps only – viable solution, but economically it simply might not make it.
The crisis has spread and shifted so much in the last 12 months that right now almost anything could be quite possible. This must be a great time to be running a hedge fund or a firm of CFD brokers.
If he doesn’t do this, there is every chance that the eurozone will be torn apart and his ‘political legacy’ will to have been in charge and unable to save the euro when either members left or the currency failed. Not nice.
If he does do this, he might be the man that oversaw a complete implosion under the weight of even more debt. Who knows in advance?
I would like to use an example to highlight the potential risk being taken with eurobonds.
Imagine for a moment that you and I are sat enjoying a glass of wine. We both have a nice glass of white in front of us.
Now imagine that because I am such a strange and twisted soul, I take a small pipette and use it to drop one drop of something into your wine. It could be acid or poison or urine, who knows? Ugh. How strange and twisted I am.
It won’t kill you and you cannot see it, but you know it is there. Do you want to finish the glass of wine?
Really? Why ever not…
I explain that I know how to fix this problem. Phew! Lucky us. I take your glass of wine and pour it into my own. There problem solved. Or is it?
Do you want my glass of wine?
There is more of it. Whatever might have been in there is more diluted.
“Go on! Drink up!” I cry.
But no. Having spoiled one glass of wine, I have now spoiled a second. How impolite of me.
And herein lies the potential problem that President Barroso and the eurozone faces. What if eurobonds make the markets not want any EU or euro nation’s debt? What if by adding in Greece or Ireland or Portugal or wherever else, they spoil all the bonds at the same time?
Good luck President Barroso. From all of us.
I wish I had the answers. I think we all do. Alas, the answer was to be more financially prudent between 1990 and 2005, and there is nothing we can do about that now.
NB. I’d like to point out that I was just trying to make a point clearly. I was not trying to suggest that Greece or Ireland or Portugal – or anywhere else for that matter – is acid or poison or urine or any other unappealing liquid or substance. It was just an analogy. I’m sorry if you thought that.financialguy