A New Global Financial System

Wednesday, May 25, 2011
By Paul Martin


The European Union is set to issue a very special bond this week. It is special because it is practically unprecedented. Just twice before has the EU borrowed money with the promise that all member nations would be responsible for paying it back.

If the eurobonds become a permanent part of the European Union, the implications are global. A United European bond market could save the eurozone’s struggling economies.

But that is not the biggest implication. For the first time, the U.S. treasury market will have a real and potentially lethal competitor, and the world will finally have a true alternative to the dollar for reserve currency.

According to the Financial Times, the first bond auction in January led to “overwhelming demand” for the paper from investors around the world. The second issuance in March was equally successful, as investors in Asia and the Middle East snapped up the bonds. The success of the eurobond sales contrasts sharply with the rising cost of raising money in most European countries.

Germany’s Klaus Regling, the head of the EU facility selling the eurobonds, said investors saw the bonds as a “new way to diversify” their assets.

When the bond trial was initially announced, there were only supposed to be three auctions. The money was to be used to help Greece. But due to the success of the first two, European Union officials will now hold seven auctions this year, maybe more.

The Rest…HERE

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