As November drew to a close the European financial crisis grew more severe when the most prudent European government, Germany, could not sell more than about 65 percent of its public debt on offer at an auction. If investors refuse German bonds, then what hope is there for the traditionally more profligate European sovereigns, such as Greece, Spain, Italy, or even France? How would a bond issue fare if it were backed by Germany’s credit pooled with that of
lower-credit sovereign nations?

An emerging European consensus (still opposed by Germany and other northern countries) favors the issuance of jointly guaranteed Eurobonds. Some ardent, free European spirits want Eurozone countries to pool their gold reserves to back any Eurobond issue aimed at rescuing the banking systems of the member countries. Passing over objections rooted in “mere legality,” like constitutional and Maastricht Treaty prohibitions against having the member countries do such a thing, pooling European gold reserves is still a bad idea in the absence of political union. And political union itself also would be an unsustainable idea.

The Eurobond idea probably arises from the Rentenmark plan that ended the German hyperinflation in late 1923. Dr. Hjalmar Schacht, who became the head of the Reichsbank then, shepherded a new German bond issue indexed to the price of gold. The underlying taxes supporting the bonds were on land. The new currency remained comparatively stable.

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