Eurobonds or ECB… Either way Germany has to pay the bill

As we argued in a recent papers which looked at the short term options for the eurozone, the option of risk pooling via Eurobonds, or the option of allowing the ECB to become the lender of last resort, both pretty much come down to German taxpayers underwriting the whole party.

Today’s Bild takes a similar, if slightly more succinct line in a piece entitled: “Britain, America, the EU... they all want our cash”. They look at both proposals and argue that Eurobonds, proposed by the EU Commission and supported by several member states, and dismiss it out of hand arguing that:

“Everyone guarantees everyone else’s debt but at the end only one is left to pay the bill: Germany!”

The ECB option, which would involve the ECB purchasing government bonds from member states at artificially low interest rates, is advocated among others by David Cameron and Barack Obama. Bild mocks the political independence of the Bank of England and the Federal Reserve, claiming that “in their countries, central banks listen to government command”, and that the price for this is enormous inflation risk because it involves the central bank printing money virtually unabated, and points out that in the UK inflation is currently at around 5%. The French are likewise in favour of the ECB taking a more active role in tackling the debt crisis with Prime Minister Francois Fillon arguing:

"We need to equip the Euro-zone with an instrument to defend our currency… there must be a certain evolution of the role of the central bank”.

Bild sums this up by claiming:

“Put plainly: The French also want to go with the big money solution – and ultimately in Europe this can only ever mean German money”.

As we have pointed out before, for well established historical reasons the German commitment to sound money and price stability is deeply rooted. When the country's leading tabloid leads with a huge piece on the independence of a central bank on its second page - forget celebrity gossip and the X factor - you start to appreciate just how deeply rooted this belief is.