A Glimmer of Hope

  It appears that in Germany, there is increasing talk of passing something called the "European Redemption Pact", a fund that would be used to pay down excess debt in Eurozone countries. The specifics are that all debts in excess of the Maastrict Treaty limits, which is 60% of GDP and now totals a staggering € 2.3 trillion would be paid by issuing 20 year bonds (guaranteed by all EU nations and vast amounts of gold) and the money raised would be used to pay down these excess debts. The bonds would be paid down by a special EU wide tax.


  Several smaller German parties are on board with this; there is whispers in Berlin that Chancellor Merkel will drop her opposition to this so long as certain conditions are met. Some of this has to do with the other EU Treaty awaiting passage, called the Fiscal Compact, which mandates that EU states balance their budgets and actually has mechanisms in it to enforce this. Several German parties will not pass the Fiscal Compact without including the Redemption Pact. I can see a scenario whereby these two agreements are introduced hand in hand and could pass the various nations' Parliaments. Officials at Germany's Constitutional Court say that these two measures are both constitutional and would likely not be challenged. Passage of these two measures in the Club Med nations would be overwhelming as they would be the beneficiaries. 


  So far, Mrs Merkel's party, the Christian Democrats, are stubbornly against this, and not without reason. But the winds are beginning to change here; there is finally a sense of just how bad things in Europe really are and what a banking collapse would mean for all of Europe's people. Today's Italian Bond auction was absolutely brutal, nevermind it being inherently unfair that Italy has to borrow money at 6.2% and loan it to Spain at 3%. The matter is coming to a head very rapidly.


  The Eurozone Crisis has been festering for three years now with no real solution in sight. The two Pacts-- the Redemption Pact and the Fiscal Compact, enacted in unison, would likely be enough to solve the crisis-- as long as these nations honor their commitments in the Fiscal Compact and balance their budgets. We'll see. But for the first time in a couple of  years, I see a very real solution making progress. Hope springs eternal, no ?


Here is Ambrose's article on this: http://www.telegraph.co.uk/finance/financialcrisis/9330398/Debt-crisis-Germany-signals-shift-on-2.3-trillion-redemption-fund-for-Europe.html