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12th June 2012, 12:57 PM
What do you think of this scheme?
CNBC Video http://video.cnbc.com/gallery/?video=3000095746&startTime
Text below
simon hobbs joins us a he will explain. simon? i want i'm going show you a plan countrily under discussion that would enible angela merkel to trade her company's fiscal strength for a far more disciplined your ozone. the chancellor would have to agree to euro bones, but only in a clearly defined limited one-time deal. she in additionally rejected this plan when her own advisers suggested it in november. tomorrow they will demand she reconsider. ranging gown over here to one-fifth of that. now, under the plan, each national debt pile is split in two. the portion of each nationa debt but the debts in red beyond that are transferred over here to a new european redemption fund. here you see the european redemption fund, and here are those piles of excess debt, if you like, sitting inside it. almost $1 trillionuros for italy, about $30 billion for the featherlands. each country is still responsible to each of thought debt piles. in fact each country would be legally required to detail exactly what part of the future streams the tax income will use to pay off that debt. all this debt would have to be paid off in, let's say, 25 years, crucially as collateral, and watch this, each country has to commit gold or foreign exchange reserves to 20% of the value of their debt. this is why they bother, because like reifying your mortgage, the redemption fund is able to dramatically cut the costs for italy and spain to service these debts byrefinancing the debts that are in the fund. in effect it borrows in the name of all 17 nations at a lower interest rate. so jointly issue debt or euro bonds. obviously germany is going to pay more to service its half a trillion euros. however, in contrast to open-ended euro bonds under which the german taxpayers subsidizes debt by nations under the end of time, this scheme is strictly temporary. germans can see what they are liable for and the fund extinguishes itself in 25 years. that incidentally might help it get past the german constitution. the germans can also dictate the price of admission to the scheme. in return for getting those debts back down to 60%, member states would have to create a structure that ensured they never, ever again set budgets that increase debts beyond 60%. hard debt breaks written into their constitutions. vitally for the germans, it also removes the need of the ecb to intervene and support national bond markets, albeit in a way that germany establishes for the first time the principle of joint debt and liability. now, there are many problems action and work is under way to solve some of them. el seat the most immediate as getting italy to put its money where its mouth is. the italians would have to commit, what, $190 billion euros as collateral, rome only has $98 euros of gold. what the italians really commit to losing control of the gold reserves now when a new poll today says 71% of italians now have little confidence in the euro and one third of italians say they would be better off returning to the lira. but, guys, it is an active conversation in germany and merkel will have to consider it tomorrow with the opposition parties. back to you. simon, of course, as you point out, one of the main oppositions to the idea of an euro bond is going joint and several. exactly what you said, joint dead liability, which means germany is taking on the liability of other nations and not really in a position to control the fiscal -- so this would limit -- it's the limit on this that you think would be potential palatability to the german public, the idea that the refinancing would be of one size, one time and go away? one time, and of course -- i mean, there is work under way to ensure the liabilities for this country if this fund were to fail was limited in proportion to the but importantly you have the gold here. if if went through, the tailance would have to import $200 billion euros. they couldn't remove that. there would be collateral. the question, of course, is how long would it take. we're raising flags to what might happen in the future. if things go the wrong way on sunday night with greece, i think everybody around the table would admit that things could happen very quickly in europe. and you might find that today what is rejected by angela merkel suddenly very rapidly came onto the table. ultimately they have to make a decision if the greek vote goes the wrong way. the bond market in spain is now the highest it's been of yields there. the italian bond spreads are spreadsing out. how else will they stop the contagion for further enveloping those bigger economies? now you have la guard saying it's a matter of months to do this, so chop-chop, as some like to say. thanks, i'ming. michael kors reporting its
CNBC Video http://video.cnbc.com/gallery/?video=3000095746&startTime
Text below
simon hobbs joins us a he will explain. simon? i want i'm going show you a plan countrily under discussion that would enible angela merkel to trade her company's fiscal strength for a far more disciplined your ozone. the chancellor would have to agree to euro bones, but only in a clearly defined limited one-time deal. she in additionally rejected this plan when her own advisers suggested it in november. tomorrow they will demand she reconsider. ranging gown over here to one-fifth of that. now, under the plan, each national debt pile is split in two. the portion of each nationa debt but the debts in red beyond that are transferred over here to a new european redemption fund. here you see the european redemption fund, and here are those piles of excess debt, if you like, sitting inside it. almost $1 trillionuros for italy, about $30 billion for the featherlands. each country is still responsible to each of thought debt piles. in fact each country would be legally required to detail exactly what part of the future streams the tax income will use to pay off that debt. all this debt would have to be paid off in, let's say, 25 years, crucially as collateral, and watch this, each country has to commit gold or foreign exchange reserves to 20% of the value of their debt. this is why they bother, because like reifying your mortgage, the redemption fund is able to dramatically cut the costs for italy and spain to service these debts byrefinancing the debts that are in the fund. in effect it borrows in the name of all 17 nations at a lower interest rate. so jointly issue debt or euro bonds. obviously germany is going to pay more to service its half a trillion euros. however, in contrast to open-ended euro bonds under which the german taxpayers subsidizes debt by nations under the end of time, this scheme is strictly temporary. germans can see what they are liable for and the fund extinguishes itself in 25 years. that incidentally might help it get past the german constitution. the germans can also dictate the price of admission to the scheme. in return for getting those debts back down to 60%, member states would have to create a structure that ensured they never, ever again set budgets that increase debts beyond 60%. hard debt breaks written into their constitutions. vitally for the germans, it also removes the need of the ecb to intervene and support national bond markets, albeit in a way that germany establishes for the first time the principle of joint debt and liability. now, there are many problems action and work is under way to solve some of them. el seat the most immediate as getting italy to put its money where its mouth is. the italians would have to commit, what, $190 billion euros as collateral, rome only has $98 euros of gold. what the italians really commit to losing control of the gold reserves now when a new poll today says 71% of italians now have little confidence in the euro and one third of italians say they would be better off returning to the lira. but, guys, it is an active conversation in germany and merkel will have to consider it tomorrow with the opposition parties. back to you. simon, of course, as you point out, one of the main oppositions to the idea of an euro bond is going joint and several. exactly what you said, joint dead liability, which means germany is taking on the liability of other nations and not really in a position to control the fiscal -- so this would limit -- it's the limit on this that you think would be potential palatability to the german public, the idea that the refinancing would be of one size, one time and go away? one time, and of course -- i mean, there is work under way to ensure the liabilities for this country if this fund were to fail was limited in proportion to the but importantly you have the gold here. if if went through, the tailance would have to import $200 billion euros. they couldn't remove that. there would be collateral. the question, of course, is how long would it take. we're raising flags to what might happen in the future. if things go the wrong way on sunday night with greece, i think everybody around the table would admit that things could happen very quickly in europe. and you might find that today what is rejected by angela merkel suddenly very rapidly came onto the table. ultimately they have to make a decision if the greek vote goes the wrong way. the bond market in spain is now the highest it's been of yields there. the italian bond spreads are spreadsing out. how else will they stop the contagion for further enveloping those bigger economies? now you have la guard saying it's a matter of months to do this, so chop-chop, as some like to say. thanks, i'ming. michael kors reporting its