The euro has what the dollar just gave up: trust.
It is therefore high time for Europe to start issuing joint debt obligations – or Eurobonds, as they are called in the bubble.
Eurobond advocates have long made their case clear: Eurobonds will not only finance European rearmament (or, in the Mediterranean, “preparedness”), but will also provide investors with a safe haven for long-term investment while the world restructures its trading system.
The last few weeks may have only strengthened their position. Yesterday, the genius commander in chief of the US realized that his GPT-created penguin tariffs may not have been the killer move in 5D chess that his sycophants initially made them out to be.
A simple explanation for the delay may be that Trump has realized that tariffs are undermining the very foundations of the US economy.
U.S. Treasury yields rose sharply yesterday, signaling a sell-off that sent bond prices lower and yields higher.
At one point, Greek government bonds (backed by the ECB, I would say) were a better investment than their American counterparts. Oh, how things have changed.
Trump said he wanted to preserve the dollar's status as the world's undisputed reserve currency and devalue it. Yesterday, he learned he couldn't have his cake and eat it too.
“Currency strength is not a question of interest rates, but of trust,” says Nicolas Veron, a senior research fellow at the Brussels-based think tank Bruegel.
While the world and stocks now have 90 days to catch their breath before we see another round of market chaos, uncertainty and mistrust in Washington will linger for a long time.
Now is the time to show the world that Europe can be trusted. If the US dollar is now a risky bet, the world needs another large, liquid, reliable currency. The euro is the only alternative that can rival the greenback in scale. But to become a safe global asset, it needs debt to match.
The topic of Eurobonds is a complex one (read my colleague Thomas's excellent article on how they work). Since some EU countries can borrow at lower rates than if the EU collectively borrowed on their behalf, why don't investors simply put their money into, say, German or Irish bonds?
Well, investors like a good spread – also from a portfolio diversification perspective. After all, there are not that many German bonds to use.
It must be acknowledged that while in the case of Eurobonds the question of “why” is clear, the question of “how” is not.
To issue large amounts, the EU would have to prove it has revenue to back the value of the bonds, and under treaties the EU cannot raise taxes.
The treaties are not subject to change. So, to make it happen quickly, the budget commissioner will have to find a few billion behind a cupboard somewhere in the Berlaymont. That might be enough to launch the Eurobond program – at least symbolically. The technical problem is real, but the political moment has arrived.
The EU can offer investors something that America no longer can: predictability.
Europe needs to take the hint. Issue bonds. Build trust. Lead.
Round up
Tariffs – The European Union will suspend retaliatory tariffs on the United States in response to Donald Trump's decision yesterday to suspend massive tariffs on most of the US's trading partners, Ursula von der Leyen said in a statement on Thursday.
Migration – The EU's top court has ruled that an EU country can designate “safe countries” for the processing of migrants through national legislation, but must be able to explain to judges how it reached that conclusion.
Agriculture – Negotiators from the European Parliament and Council reached agreement in Brussels last night on the bloc's first-ever soil monitoring legislation, despite pressure from farming groups in recent days to reject it.
Technology – Despite growing demand for electricity from AI, its share of the global energy system is likely to remain small in the next decade, a new report says.
Across Europe
Germany – In a recent agreement, Germany's coalition partners pledge to lower electricity prices, a move long demanded by both the country's energy-intensive industries and politicians concerned about the country's global competitiveness.
Slovakia – Slovakia's plan to cull a quarter of its bear population after a fatal attack on a local man has angered environmentalists who say the government has failed to seriously consider preventative measures.
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