Blue and red bonds
One of those structures would see member states issuing both eurobonds and sovereign bonds at the same time. Eurobonds, which are called "blue bonds" in this case, would cover any debt equal to 60% of a member's GDP. If a nation has a debt larger than 60% of its GDP, which most do, then it would be covered by sovereign bonds issued by each country, called "red bonds." So Italy, which has a debt to GDP ratio of 120%, would have half of its debt guaranteed as eurobonds and the rest issued as Italian bonds. The trouble with this scheme seems obvious – those red bonds would most likely still have an interest rate that was too high for some nations to handle. While it pressures them to make fiscal changes, it may not buy them enough time to get their fiscal house in order.
Another questionable eurobond structure is one that would see some nations issuing joint eurobonds while others stick with their own sovereign debt. This would allow those member states comfortable enough to give up the power of the purse to do so, while those not so comfortable could continue issuing their own debt while keeping the euro as their national currency. The idea was discussed last weekend between German and French officials who viewed this as a faster way to get eurobonds issued. Since it didn't force members to join the eurobond, it therefore did not require a change in the EU treaty – something that all 27 nations of the EU, including those not in the eurozone, would need to approve.
While this might get eurobonds out there faster, it wouldn't solve the crisis. According to the German press, the French and the Germans wanted the first eurobond members to be those with triple-A credit ratings, creating what they called the "elite" bond. Such a scenario would effectively be a life raft to protect those nations from contagion, but wouldn't be a solution to the crisis. The peripheral members of the euro would continue to face funding pressure unless they were let in the new "elite" club. Those in the club could possibly vote to keep the more profligate members from joining, which would defeat the whole idea of issuing a joint bond to stabilize the eurozone.
Total fiscal integration across the eurozone appears to be the best way to keep the monetary union alive. Whether or not the ECB evolves into a Fed-like lender of last resort is irrelevant if the eurozone's various national budgets aren't in sync. German and French leaders are expected to reveal part of their eurobond plan at an important EU leadership conference on December 9th. A plan that calls for a united eurozone bond should ease market fears, but any attempt to divide the eurozone could cause the euro to finally bleed out.
