More of the same, but less of it

One proposal to salvage what’s left of the Eurozone calls for the issuance of “Eurobills,” short-term (one year or less) debt instruments backed by all 17 member nations, which will buy some time for the countries farthest in the hole. Daily Pundit’s nemo paradise is downright optimistic about the prospects:

I have to admit that, after years of scoffing at the idea that the Greeks and the Germans could live in the same house, I now think it’s inevitable. They’ll just live on different floors, with the Greeks in the basement and the Germans in the penthouse.

The solution of a common fund for shaky sovereign debt is brilliant, because, if it’s done right (a big “if,” admittedly) it solves in one stroke the capital flight issues of Spain and Italy without granting the Greeks a free pass for their outright hold-up of German taxpayers.

How this might work out:

[I]f Spain, Belgium or Italy were to use their entire quota of Eurobills (10% of GDP), this would cover about half of their refinancing needs for 2012. Thus financial markets would remain an important mechanism to provide price signals and incentives for fiscal discipline on longer dated debt. But at the same time, Eurobills would give them time to implement credible fiscal reforms. In Le Monde, the authors write that a fund of 100 to 200 billion euros would be enough to guarantee the safety [of] Eurobills. Eurobills would allow a country like Italy to save 5 billion a year directly (by lowering short rates), and at least as much indirectly through its stabilizing impact on long rates.

Emphasis in the original.

I’m just wondering how blissful life in these United States would be if saving €5 or €10 billion a year would actually make a difference in our balance sheet.

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