Thursday, June 1, 2017

Securitized Sovereign Debt Issue Deparate Attempt To Fund EU

Brussels is looking to package eurozone's sovereign debt into a new financial instrument and sold to investors to strengthen the single currency area. This proposal, a compromise intend to create a European Safe Asset, is design to attract capital back to European bonds after the ECB ends its bond buying program. Good luck with that, because "money" while doing stupid things, it's not influenced by smoke and mirrors longer term.

The slicing and dicing of securitized debt, a scheme that boosted real estate to manic highs in 2007 but nearly took down the entire financial system a year later, will be seen has the EU's last-ditch and desperate attempt to fund the EU increasing drag down by weaker southern members. The weaker southern members, a backdrop that demands higher interest rates, is being prevented by belief that currency can be managed by a single interest rate. Ever wonder why there are twelve Federal Reserve Districts in the United States? Economic diversity requires unique interest rates. The same principle applies to the eurozone.

The ABS proposal stems from German resistance to Eurobonds. Issuance of Eurobonds would not only increase interest rates but also reduce Germany's influence by remove it as a destination of capital within the EU. Neither a palatable for Germany or European banks. Political posturing won't solve this problem. Only crash and burn will end it in favor of cooperation.

Headline: EU presses plan to bundle debt of eurozone countries

Brussels has called for sovereign debt from across the eurozone to be bundled into a new financial instrument and sold to investors as part of a plan aimed at strengthening the single currency area.

A European Commission paper on the future of the euro, unveiled on Wednesday, advocates the creation of a market for so-called sovereign bond-backed securities, which would package together the national debt of different countries into a new asset.



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