Following a mostly peaceful Security Conference in Munich over the weekend, Estonian Prime Minister Katja Kallas shed light on the underlying purpose behind the recent uproar over Ukraine funding — Eurobonds.
Kallas advocated for the issuance of $110 billion in Eurobonds by the EU Commission to bolster Europe’s defense capabilities and support Ukraine. While this proposal may seem like a continuation of previous trends, it underscores a deeper issue: addressing the EU’s inherent vulnerability. As an economic bloc with a common currency, the EU lacks sufficient political authority to stabilize its currency’s value.
Consequently, EU leadership, aligning with Davosian principles, is striving to grant the EU Commission greater authority through bond issuance and centralized taxing mechanisms. This move follows the issuance of SURE Bonds in 2020 amidst the COVID pandemic, aimed at legitimizing this process. In a previous article from October last year, I discussed this development extensively. ECB President Christine Lagarde publicly expressed the desire to establish a Eurobond Index, aiming to enhance the visibility of SURE bonds in the hopes of attracting investors for subsequent rounds.
The particular SURE bond has rebounded to approximately $0.61 after one of the largest rallies in sovereign debt markets recorded at the end of 2023. However, this quoted price lacks transparency, as trading is limited to once a week in Frankfurt where these bonds are listed.
Despite their limited market activity, SURE bonds serve as a significant political instrument. They grant the EU Commission the authority to impose taxes to cover the 0.1% coupon rate. This taxation scheme mirrors the concept of “just the tip,” akin to a minor surcharge on everyday expenses.
A significant challenge arises from the fact that initial investors in these bonds still face losses of up to 40%. With the first round selling at a steep discount, enticing buyers for subsequent rounds will require offering higher coupons. This urgency highlights the pressure on central banks to lower rates.
The EU faces difficulties in raising necessary capital for its fiscal integration plans, especially with the ECB rates pushed up to 4.5% to align with Powell’s FED. Lowering rates is crucial to fund ambitious endeavors for a hydrocarbon-free future.
This ongoing situation underscores my repeated assertion over the past two-plus years that Powell’s “higher for longer” rate policy not only strains the European banking system but also challenges its political objectives.
Maintaining sustainability at a 5.5% rate is doubtful. Any argument suggesting the US is more vulnerable to this situation than the EU must be articulated thoroughly, especially considering the dollar’s dominance in global trade over the past two years.
SURE = War
The initiative for war bonds was championed by the usual figures advocating for EU militarization, including French President Emmanuel Macron and EU President Charles Michel. It’s crucial to highlight that this endeavor is devoid of economic motives; it’s purely political. They are prepared to invest whatever political capital necessary to impose this outcome on the people of Europe.
For individuals like Macron, Michel, Ursula Von der Leyen, and their superiors, both the European bourgeoisie and the proletariats are perceived merely as tax resources. It’s no surprise they oppose actions that might benefit them, such as consuming beef.
Now, let’s draw some connections. It becomes clear why they wielded threats of economic repercussions against Hungary’s Viktor Orban over delays in approving their $50 billion aid package for Ukraine. Sustaining Ukraine’s stability is crucial to justifying funneling over $100 billion into struggling French and German banks grappling with massive losses from investments made during the Negative Interest Rate Policy (NIRP) era.
This marks just the initial phase of their agenda to shift sovereignty away from member states and towards Brussels. However, to attract global investors, they must demonstrate control over dissenting voices.
Sovereign debt relies on taxation and the productive capabilities of the population. Presently, the EU lacks both.
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