http://www.spiegel.de/international/europe/0,1518,790985,00.htmlThe euro zone debt crisis could be tackled by setting up a European state credit insurance system that could stop speculative assaults on high-debt nations, stabilize markets and retain an incentive for governments to cut their debt, writes Walther Otremba, a former top official in the German government.
Walther Otremba, 60, served successively as a senior official in the German economy, finance and defense ministries. He retired in March. He has written a guest commentary in SPIEGEL explaining his idea for a state credit insurance system that could help to tackle the euro crisis.
The current euro debt crisis was triggered by an increase in the yields on Greek, Spanish and Italian government bonds caused by the sudden realization that sovereign bonds issued by euro-zone member states weren't risk-free investments.
Jointly issued euro bonds could perhaps stabilize the situation, but they would destroy important incentives for governments to limit their borrowing. The current strategy for containing the crisis, modelled on the practices of the International Monetary Fund, consists of providing fresh credit and guarantees in return for pledges of strict austerity programs. But that system places nations in fiscal straitjackets and is out of keeping with the principle of national sovereignty.
Another possibility to contain the crisis would be the establishment of a state-run European credit insurance system. It would preserve the incentives provided by risk premiums on national governments bonds, would provide security for creditors and wouldn't burden stable countries more than absolutely necessary. The basic idea is that risk premiums for government bonds would be channelled into a guaranteed bond insurance system. For example, the purchaser of a bond issued by Italy would pay an annual insurance premium of 3.6 percent from his yield of 5.6 percent. In return, he would receive a secure bond with a slightly higher yield than that paid on a German bond.