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Economics

Az EU bocsásson ki örökjáradék-kötvényeket

Apr 20, 2020 George Soros

NEW YORK – Az Európai Bizottság elnöke, Ursula von der Leyen bejelentette, hogy Európának kb. 1 billió euróra (345,5 ezer milliárd forint) lesz szüksége a COVID-19 világjárvány leküzdésére. Ezt a pénzt az Európai Helyreállítási Alap létrehozására fordíthatják, de hogyan fogják előteremteni a szükséges összeget?

A Helyreállítási Alaphoz szükséges pénzt örökjáradék-kötvények eladásával lehet előteremteni, amelyek esetében a tőkét nem kell visszafizetni (de a kibocsátó belátása szerint visszavásárolhatók vagy visszaválthatók).

Természetesen példátlan lenne, ha az Európai Unió valóban örökjáradék-kötvényeket bocsátana ki, különösen ilyen nagy mennyiségben. A múltban viszont már számos kormány támaszkodott örökjáradék-kötvényekre. A legismertebb példa az Egyesült Királyságé, amely lejárat nélküli kölcsönkötvényeket alkalmazott a napóleoni háborúk költségeinek fedezésére, az első világháború kiadásait pedig háborús kötvényekkel finanszírozta. Londonban egészen a 2015-ös visszavásárlásukig kereskedtek ezekkel a kötvényekkel. Az 1870-es években az Egyesült Államok Kongresszusa felhatalmazta a pénzügyminisztériumot, hogy lejárat nélküli kölcsönkötvényeket bocsásson ki a már meglévő kötvények konszolidálása érdekében, és ez a következő pár évben meg is történt.

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George Soros

Writing for PS since 1997
126 Commentaries

George Soros is Chairman of Soros Fund Management and the Open Society Foundations. A pioneer of the hedge-fund industry, he is the author of many books, including The Alchemy of Finance, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means, and The Tragedy of the European Union: Disintegration or Revival? His most recent book is In Defense of Open Society (Public Affairs, 2019).

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0 Comments on this paragraph, 15 Comments on this article

Norman Kennedy Apr 23, 2020

I might be interested if the interest rate was at least 7.5%.
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Jay Kay Apr 23, 2020

So Frank-N-Furter wants the Globalist/Communist Ephemeral Union, to issue perpetual junk bonds, to underwrite the damage caused by the Chinese Communist Party's deliberate virus driven Peal Harbour like attack on the West.

Well, printing perpetual bonds to be issued by a doomed entity that's self evidently going to become a smoking ruin in couple of years (with real smoke and real ruins), is certainly one way to solve the current toilet paper shortage.

Here's the thing Frank-n-Furter, the Globalist/Communist Frankenstein monster creation of industrial Communist China (composed of the stolen body parts of Western industry, Western capital, Western IP and know how, and Western markets), and, the Globalist/Communist Frankenstein monster creation of the EU (composed of the stolen sovereignty, border control, finances, economies, and futures of 25 nations) - are both on a short countdown to oblivion.

It only remains to be seen which Globalist/Communist Frankenstein monster bites the dust first. Before the Chinese Communist Party's cute trick of suspending flights from Wuhan to the rest of Chins, whilst simultaneously allowing flights from Wuhan to all points in the West, one would have thought that the Globalist Ephemeral Union would crash and burn (literally) first - say within two years. But after the Chinese Communist Party's biological sneak attack on the West using the Wuhan Flue Maneuver, it's anyone's guess....
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Per Kurowski Apr 23, 2020

The first version of this article included “long-term investors such as life insurance companies will snatch them up”
And so, I asked, “Would you pay good money for a life insurance issued by an insurer invested in perpetual bonds?”
And now what I quoted has disappeared. Is that a correct thing to do?
And now we are just down to “ECB’s bond-purchase programs. Since the maturity of a perpetual bond is always the same, the ECB would not be required to rebalance its portfolio.”
What???
- Roger Lewis Apr 23, 2020
  
  Why would Soveriegn Nations be required to pay interest to the ECB?
  https://www.youtube.com/watch?v=GY3B7DHmWgQ
  Meet The Fuggers.
  https://notthegrubstreetjournal.com/2017/02/19/meet-the-fuggers-brexit-the-euro-and-clueless-elites/
  ised capitalist Alchemy, the ECB and The Commission further choose to sacrifice national Governments to Market discipline and certain ruin at the hands of Private Bankers with the power to create money secured against the commonwealth and commons of its own Citizens. With National Governments forced to borrow in open markets without any legal recourse to the ECB as a lender of last resort. Latterly the Five presidents report seeks to justify More Europe in ´´Completing Europe’s Economic and Monetary Union´´
  in the Five presidents report Mr Junker , ´´President´Ís that President No1 or President No 5, A or E , Mr Junker Then,, Or, Our Cher Jean Claude.
  tells us that;
  
  Responsible national fiscal policies are therefore
  essential. They must perform a double function:
  guaranteeing that public debt is sustainable and
  ensuring that fiscal automatic stabilisers can operate to
  cushion country-specific economic shocks. If this is not
  the case, downturns are likely to last longer in individual
  countries, which in turn affects the whole euro area.
  But this is not enough. It is important to ensure also
  that the sum of national budget balances leads to an
  appropriate fiscal stance(5) at the level of the euro area
  as a whole. This is key to avoiding pro-cyclical fiscal
  policies at all times.
  (5). The concept of fiscal stance reflects changes to the fiscal balance in order to influence aggregate economic demand and output. Under the Stability and Growth Pact,
  the fiscal stance is measured on the basis of the structural fiscal balance, i.e. the fiscal balance corrected for the effects of the economic cycle and net of one-off and
  other temporary measures. Generally speaking, a fiscal deficit (surplus) would suggest an expansionary (contractionary) fiscal stance
  4.2. A fiscal stabilisation
  function for the euro area
  There are many ways for a currency union to progress
  towards a Fiscal Union. Yet, while the degree to which
  currency unions have common budgetary instruments
  differs, all mature Monetary Unions have put in place
  a common macroeconomic stabilisation function to
  better deal with shocks that cannot be managed at the
  national level alone.
  This would be a natural development for the euro area
  in the longer term (Stage 2) and under the conditions
  explained above, i.e. as the culmination of a process of
  convergence and further pooling of decision-making
  on national budgets. The objective of automatic
  stabilisation at the euro area level would not be to
  actively fine-tune the economic cycle at euro area
  level. Instead, it should improve the cushioning of large
  macroeconomic shocks and thereby make EMU overall
  more resilient. The exact design of such euro area
  stabilisers requires more in-depth work. This should be
  one of the tasks of the proposed expert group.
  The Bank of England seems to have let the UK government know the ECB has perhaps not been so forthcoming with the ´´FIVE´´presidents.
  At this point for you dear reader and the `Five Presidentees´, I would like to effect the Introduction of a Brilliant Finance Scholar, If only the Technocrats would seek out real experts rather than Cronies in considering such important matters.
  
  INTRODUCING PROFESSOR RICHARD WERNER.
  Richard Werner ‏@ProfessorWerner First empirical test in 5000 years of banking on whether each individual bank can create money out of nothing is out
  http://ac.els-cdn.com/S1057521914001070/1-s2.0-S1057521914001070-main.pdf?_tid=781b835e-8880-11e4-8cf9-00000aacb35f&acdnat=1419104788_bcaee65302916a2bab37a5cf7f63c992 …
  
  https://positivemoney.org/2014/03/bank-england-money-money-creation-modern-economy/
  
  If you skipped the links and took me at my word here’s a bit more of Schumpeter to tee up our shot.
  
  “Something like a certificate of future output or the award of purchasing power on the basis of promises of the entrepreneur actually exists. That is the service that the banker performs for the entrepreneur and to obtain which the entrepreneur approaches the banker. … (The banker) would not be an intermediary, but manufacturer of credit, i.e. he would create himself the purchasing power that he lends to the entrepreneur …. One could say, without committing a major sin, that the banker creates money.” 14
  Schumpeter (1912, p. 197, emphasis in original)
  
  “[C]redit is essentially the creation of purchasing power for the purpose of transferring it to the entrepreneur, but not simply the transfer of existing purchasing power. … By credit, entrepreneurs are given access to the social stream of goods before they have acquired the normal claim to it. And this function constitutes the keystone of the modern credit structure.”
  Schumpeter (1954, p. 107)
  
  And finally Professor Werner in his own words.
  
  ´´Among the many different monetary system designs tried over the past 5000 years, very few have met the requirement for a fair, effective, accountable, stable, sustainable and democratic creation and allocation of money. The view of the author, based on more than twenty-three years of research on this topic, is that it is the safest bet to ensure that the awesome power to create money is returned directly to those to whom it belongs: ordinary people, not technocrats. This can be ensured by the introduction of a network of small, not-for-profit local banks across the nation. Most countries do not currently possess such a system. However, it is at the heart of the successful German economic performance in the past 200 years. It is the very Raiffeisen, Volksbank or Sparkasse banks – the smaller the better – that were helpful in the implementation of this empirical study that should serve as the role model for future policies concerning our monetary system. In addition, one can complement such local public bank money with money issued by local authorities that is accepted to pay local taxes, namely a local public money that has not come about by creating debt, but that is created for services rendered to local authorities or the community. Both forms of local money creation together would create a decentralised and more accountable monetary system that should perform better (based on the empirical evidence from Germany) than the unholy alliance of central banks and big banks, which have done much to create unsustainable asset bubbles and banking crises (Werner, 2013a and Werner, 2013b).
  
  The Euro Crisis has been subject to an egregious sort of Historical Revisionism.
  Readers here will benefit from reading this excellent report from Corporate watch.
  https://corporatewatch.org/news/2015/jan/23/false-dilemmas-critical-guide-euro-zone-crisis
  
  The EU is made up of a web of institutions; the main ones are the Commission, the Parliament and the Council of Ministers. It is grounded legally in a series of Treaties.
  Setting up the euro zone was a lengthy process, that was from the beginning a corporate-led vision. The common currency imposed a single monetary policy (e.g. decisions about interest rates) decided centrally, but fiscal policies (e.g. decisions about taxes) decided nationally.
  Monetary policy for all countries is decided by the European Central Bank (ECB), which is prohibited from lending directly to governments. Instead, governments borrow by issuing bonds bought and traded in financial markets.
  Restrictions were put in place regarding targets for the size of debts (at 60% of GDP) and deficits (at 3% of GDP). These targets were enshrined in the Maastricht Treaty and further entrenched through the Stability and Growth Pact. No euro zone country ever fully complied with these targets, however, only some were berated about breaking them.
  The crisis led to the creation of the Troika – comprised of the Commission, the ECB and the International Monetary Fund (IMF) – three institutions that are unaccountable, opaque and fundamentally undemocratic. They dictate the bailouts and the conditions that must be implemented in order for the recipients to receive the money.
  
  Corporate Watch.
  
  “The Troika acts like a governor and visits it’s colonies in the south of Europe and tells them what to do.” Derk Jan Eppink, a conservative Belgian MEP
  
  Mr Soros makes an interesting appearance in this 2010 Film Inside Job,
  https://www.youtube.com/watch?v=FzrBurlJUNk
  The Music had already stopped long before COvid 19, the fed started Bailing out Wall Street last Autumn. Now its the ECB's turn to do their bit for the Ailisng Deutsche Bank.
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Miguel Guedes Apr 21, 2020

Even if inflation briefly picks up, there are more than enough institutional means within the EU to cope efficiently with such a problem. On the other hand, we can be sure that without the appropriate fiscal response the future of the union will be dissolution...
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Christopher williams Apr 21, 2020

It is a very interesting proposal, not least in this time of negative yields for government paper. I suppose the constant question is whether the funds are distributed to individual Member State governments - and, if so, who decides on what basis? If that can be resolved, it has a lot going for it.
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Geoff Crocker Apr 21, 2020

This moves in the right direction, in recognising that much current debt is non-repayable and essentially perpetual. But it still leaves an interest burden. Better is a proposal for sovereign money, issued debt-free, constrained only by output GDP, the ultimate reference from which the value of money is derived. Sovereign money can fund social expenditure including a basic income. For more see The Case for Basic Income at www.ubi.org and 'Basic Income and Sovereign Money' at https://www.palgrave.com/gb/book/9783030367473
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nelly bish Apr 21, 2020

The virus will affect every country on earth; even if they don't have any covid cases and to prevent recurrence every country must take action. This will all cost money. It will also cost money to tackle the climate crisis and others to come. It cannot be left to individual governments or leaders to protect the planet and its resources. An Earth Bank must be set up and all of the debt put in there. All countries will pay some interest into the Bank and that money will be used to protect the Planet. The bank will be managed by a global federation of NGO's. If any country doesn't meet its commitments to tackle these threats to the planet, to protect and restore its natural habitat, then the interest rate will rise. This is the embryo of an idea, but this is what is needed. To defeat covid19 and every other similar threat requires sacrifice from every person on the planet. They should not have to pay for it. The future of out earth should not be left in the hands of the rich and powerful. Now is the time for change.
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Peter Schaeffer Apr 21, 2020

This is just another scheme to bailout Club Med with Germany, the Netherlands, etc. paying for it. Club Med had more than a decade to set its finances in order after the Great Recession. Did Club Med use that time wisely? Not exactly, Public debt went up, not down.

Of course, the real problem is that the Euro is strangling Club Med.

Can the author admit that the Euro is killing much of Europe? Of course not. So instead we have ever more desperate efforts to save the status quo. Time for reform. Real reform. That means killing the Euro.
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Jack Frisch Apr 20, 2020

Nice idea if the ”coupon” is inflation-hedged to be say, 0.5% above something like a 30-day bill rate. Given that inflation has been another method governments have used to relieve their debt burdens, why would any historically-minded investor put money into a perpetually fixed coupon? In a hyperinflation even 30-days would be too long. I may sound catastrophic, but hey, catastrophes do happen!
- Albert de M. Apr 22, 2020
  
  Mr. Soros's proposal is just fine as it is.
  
  Investors are currently paying to hold long-term German government bonds, i.e. buying bonds with negative nominal yields (and real yields are even more negative), even out to 30 years.
  
  You may think investors are crazy to pay the German government to borrow their money, but they're doing it. In some cases, they're legally required to hold a certain amount of low-risk bonds, and Bunds are one of the safest things out there.
  
  EU bonds backed by the ECB would be very safe too, and a positive nominal yield, even if negative in real terms, would make them very attractive to euro area investors who need to hold a safe, long-term asset, and are currently paying EU governments to borrow their money.
  - Jack Frisch Apr 25, 2020
    
    Quite right - about 30% of the world’s non-junk long-term bonds carry a negative interest rate. But 1) there is a difference between a 30-year bond and a perpetual bond and 2) embedded in interest rate differentials sit inflation expectations, exchange rate expectations and interest rate expectations. It is worth looking at which countries can and which countries can’t issue long bonds at a negative rate to see whether a long-term Euro would be sold at 0.5%.
    
    With regard to the first point, I can imagine 0.5% being acceptable for 30 years because I can imagine the world being subject to zero growth for the next 30 years, but I can’t imagine it continuing the “forever” implied by a perpetual bond. Surely interest rates can't stay low forever!
    
    With regard to the second point, I note that Germany and other stronger economy cultures that make up the 30% can (and do) have long-term negative interest rate bonds but Italy other weaker economy cultures that make up the 70% cannot (and do not) have negative long-term rates. How come? I suspect that is because there is an expected significant intra-European currency re-alignment some time in the next 30 years and a further expectation that when the Euro breaks up, the stronger economy currencies will appreciate significantly relative to the weaker economy currencies. Not necessarily tomorrow or next year but when there is another financial crisis in the next 30 years. But maybe tomorow - who knows? Note that looking forward 30 years is not fanciful in a zero interest rate world in which the market offers indifference between $100 today and $100 in 30 years time. (Break-up of the Euro? Highly likely in my humble Australian opinion so long as the EU budget is minuscule).
    
    Back to the perpetual Eurobond currency effect. I can envision how a 0.5% perpetual Eurobond can be rational if the Euro were to appreciate against the USD in the long-term. A USD collapse of the USD as the US withdraws from the world political and economic systems or if China stops rolling over US Treasuries. But I’m not sure that Europe would necessarily strengthen relative to USA in such a world.
    
    We live in one of those strange and interesting times in which the unexpected and unimaginable becomes real. Capitalism dying with a whimper rather than a revolution? Who knows!
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Sriram Bharadjwaj Apr 20, 2020

There are definitely merits to the fact that Perpetual bonds is someting the EU can bring into force, but dont you think there will loss in value on money due to inflation over time?
- Albert de M. Apr 22, 2020
  
  That's actually the point. Investors, especially in the euro area, have a huge appetite for safe assets right now. That's why they're paying some governments, e.g. the German government, to borrow their money. This is the perfect environment for governments to borrow, including to help businesses and consumers, so that we don't fall into a depression.
  
  If you invest €1000 in 30-year Bunds (German government bonds) today, you'll end up with about €980 in 2050. Even if you assume economic stagnation and inflation of only 1% over the next 30 years, that €980 you get in 2050 will only be worth about €730 in today's terms. So, an investor who puts €1000 into 30-year Bunds and holds them until maturity is basically paying the German government about €270 for the privilege of holding Bunds. Why would they do that? Because Bunds are safer than just about anything else (including money in the bank, above the level covered by deposit insurance).
  
  Again assuming stagnation and 1% inflation, a perpetual EU bond with a nominal yield of 0.5% would only cost you about €140 per €1000 over a 30-year period, meaning you'd pay about €130 less than you would if you invested in 30-year Bunds. If inflations is higher, both would cost you more, but the perpetual EU bond would still be cheaper. So, perpetual EU bonds would be attractive to investors, and also attractive to the borrower (the EU), because there's no rollover deadline to worry about.
  - Jack Frisch Apr 26, 2020
    
    Do you honestly think that capitalism in its present form can survive 30 years of stagnation? It is on its legs already after 10! And if the world does morph into a new form of capitalism and presumably new forms of political aggregation, then surely a bond issued by a government under the "old" regime is quite meaningless.
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