Why War Bonds Are Returning in Europe
February 21, 2024
After a mostly peaceful Security Conference in Munich over the weekend, Estonian Prime Minister Katja Kallas let the real purpose of all the recent hysteria over Ukraine funding out of the proverbial bag — Eurobonds.
Kallas was handed the bully pulpit to make the argument for $110 billion in Eurobonds be issued by the EU Commission to spend on arming Europe for the future and supporting Ukraine. It just sounds like more of the same that we’ve heard for two years now. More money for Ukraine. More war spending.
But this is a far more complex and nuanced issue than just making sure the West fights Russia to the last Ukrainian. This is ultimately about shoring up the EU’s fundamental weakness. It is an economic bloc with a common currency whose political authority is mostly powerless to control the value of that currency.
For this reason the EU leadership, nominally Davosian in their agenda, has been working their political machine towards giving the EU Commission that power through bond issuance and a centralized taxing mechanism.
They did this after COVID with their SURE Bonds, which they issued in 2020 to legitimize this process. I covered this in a long article in October last year when this very issue came up again when ECB President Christine Lagarde made it public that they want to create a Eurobond Index so give them greater visibility in the vain hope someone will buy this next round of them.
There is also a major push happening offscreen for these bonds to become indexed next to everyone else’s, i.e. to more easily sell them to Muppet investors, through the imprimatur of them being official and backed by the full faith and credit of the EC. Of course, the initial investors in them have lost their ass as the bulk of them were issued when the ECB was at -0.6%. (See Here).
The ECB just held rates at 4.5%. The bond math doesn’t work. So, the EU got the last big lot of blood and treasure after the COVID operation from its investor class, who are now sitting on massive losses. Some of these investors, of course, were the member central banks themselves.
Don’t believe me? A €7 billion 0.1% coupon SURE bond maturing in October of 2040 is now trading at a yield of 3.867%. Now that doesn’t look so bad until you grep the price of that bond, which is trading with a bid/ask spread of 0.54/0.55… or a 45% loss.
This particular SURE bond has recovered in price back to around $0.61, after one of the biggest rallies in sovereign debt markets in history to end 2023. But that’s also just the quoted price. There is no price discovery on these, as there’s only on trade a week actually happening in Frankfurt where these things are listed.
They aren’t a market. They are, however, a massive political tool. Because they gave the EU Commission the ability to levy taxes to pay the 0.1% coupon on them. It’s the government tax and spend equivalent of “just the tip.” It’s only a small surcharge on your grocery bill… or whatever.
One problem is that the initial investors in these things are still sitting on 40% losses. If the first round are selling at a 40 to 50% discount what coupon are they going to have to offer to get anyone to buy the next round? nd it’s part of the reason why there is such urgency to get central banks to lower rates.
The EU can’t afford to raise the capital it needs to complete its
fiscal integration plans with the ECB forced up to 4.5% to keep pace
with Powell’s FED. They need these rates back near zero to fund their
grand dreams of a hydrocarbon-free totalitarian future.
As always, this underscores the point I’ve been making for two-plus years now that Powell’s “higher for longer” rate policy is squeezing not just the European banking system but also it’s political objectives.
None of this is remotely sustainable at 5.5%. And for anyone who thinks the US is more vulnerable to this than the EU is, I invite you to explain that to me in grave detail with the dollar having drank nearly all of the euro’s milkshake in global trade over the past two years.
I’ll wait.
From SURE to War
The fate of these SURE bonds and all future EC bond issuances hangs in the balance here. In fact, the future of the EU itself hangs in the balance. And that’s why I was contacted by Sputnik News yesterday to give my thoughts on this subject.
“Eurobonds are the Holy Grail for European integration,” Tom Luongo, financial and geopolitical analyst, told Sputnik. “PM Kallas is telling you what the plan is. The EU’s Achilles’ heel is the euro itself and its lack of central taxing authority.”
“Eurobonds, issued through the European Commission, of this type are another way of handing that authority to Brussels, bypassing member state central banks and legislatures,” he added.
“If one was cynical, which I am, one would suspect that the EU’s support for the war in Ukraine was mostly driven by this desire to centralize power in Brussels,” Luongo argued. “You start a war in Ukraine by purposefully crossing Russia’s red lines, drive inflation up locally, and empty the military coffers of all the post-WWII weapons and ammunition that is now outdated. (…) If you are losing, as you are now, you play up the threat of Russia not stopping at Ukraine to justify shifting your domestic spending to a military build-up, issuing Eurobonds to pay for it.”
This plan for war bonds was shepherded by the usual suspects for EU militarization, French President Emmanuel Macron and EU President Charles Michel. And I want to stress here that nothing about this project is economic. It is purely political. They will expend whatever political capital they must to force this outcome on the people of Europe.
To folks like Macron, Michel, Ursula Von der Leyen and their bosses, European bourgeoisie and proletariats alike are just tax cattle. No wonder they are so against them eating beef.
So, let’s connect another couple of dots. Because now it should be obvious that this is why they threatened Hungary’s Viktor Orban with economic devastation for holding up their $50 billion aid package for Ukraine.
They need to keep Ukraine going to justify now spending another $100+ billion to launder into failing French and German banks sitting on massive losses from all the debt they bought during the NIRP (Negative Interest Rate Policy) period.
This is just the beginning of their plans for transferring sovereignty out of the hands of the member states and handing it to Brussels. But to sell this to global investors they have to prove to the world they have all the wayward voices under control.
Sovereign debt is secured through taxation and the productive capacity of the population. At this point the EU has neither.
NATO Forever
Now when I think about what all the principle players have been harping about for the past couple of weeks the common theme was NATO uber alles. This was echoed by everyone from President Biden at his latest press conference and Vice President Harris at Munich, to Hillary Clinton, clearly on more than a proof of life tour.
We had Alexei Navalny’s death used to raise money for war. Reports of Russia shooting US satellites out of orbit. Locusts!
It never stops with these people. There’s always a convenient Russian or Chinese bogeyman lurking behind every headline. But the underlying theme is to keep the money flowing into NATO. Trump’s comments on standing aside if Putin attacked a NATO country that didn’t pay its way were used by all of them to breathlessly support MOAR NATO.
But, in the end, this is just about the exercise of raw power against domestic populations. Putin and his army are no more a threat to Berlin than they are a threat to Kiev at this point.
NATO, and the plans to morph it into a global police force under UN control, is the reason for all of this. Europe wants the US to be a vassal after spending itself to death fighting the phantom menace of Putin. Eurobonds are the real story.
The rest is just noise.
N.B. As always, I will publish everything I sent to Sputnik News for the sake of transparency
Sputnik: The EU needs to work on a plan to issue $107.8 billion in eurobonds to boost the continent’s defense industry, and in the meantime do more to get weapons to Ukraine, Estonian Prime Minister Kaja Kallas told Bloomberg in an interview at the Munich Security Conference on Sunday. “We are in a place where we need to invest more and [explore] what we can do together, because the bonds that would be issued by separate countries individually are too small to scale up,” she said. “Eurobonds could have a much bigger impact.”
What is your overall opinion on this idea and its potential effectiveness?
Eurobonds are the Holy Grail for European integration. PM Kallas is telling you what the plan is. The EU’s Achilles’ heel is the euro itself and its lack of central taxing authority. Eurobonds, issued through the European Commission, of this type are another way of handing that authority to Brussels, bypassing member state central banks and legislatures.
If one was cynical, which I am, one would suspect that the EU’s support for the war in Ukraine was mostly driven by this desire to centralize power in Brussels. You start a war in Ukraine by purposefully crossing Russia’s red lines, drive inflation up locally, and empty the military coffers of all the post-WWII weapons and ammunition that is now outdated. If you win the war it’s great. Russia’s been subjugated and a new colonial frontier opens up for Europe to grab the collateral needed for the next iteration of Imperial Europe.
If you are losing, as you are now, you play up the threat of Russia not stopping at Ukraine to justify shifting your domestic spending to a military buildup, issuing Eurobonds to pay for it. The EU Commission has to be given direct taxing authority to guarantee the bonds to investors. Their SURE bonds, issued after COVID-19, were the first proof of this mechanism.
This is why they were so angry with Viktor Orban over blocking Ukraine aid. It legitimizes their central authority to guarantee to investors they can impose their will on EU members. while keeping Ukraine on financial life support to justify re-arming Europe.
While funding for Ukraine remains at a standstill in the US Congress, the EU appears to be heading towards accumulating more debt. What sort of risks does this method of joint borrowing pose for European countries? What anticipated and unforeseen consequences do you expect?
The risks are mostly political for the people of Europe. Because it means that if you think that things are out of control in Brussels now, just wait when you are paying taxes directly to the EU Commission. What you saw over the past month with Orban was a warning to the rest of the EU. There is no partnership here, there is only the exercise of raw power from the central authority.
By putting these words into the mouth of a rabid Russophobe like Estonia’s PM Kallas it’s meant to shame the rest of the EU to go along with this. What’s left of national sovereignty in Europe will die if the EU Commission continues getting these special bond issuances, €100 billion at a time.
While everyone was at Munich this past weekend talking about their ‘sacred commitment’ to NATO, the reality is that proposals like this will eventually blow apart NATO. NATO in the mind of the Eurocrats and globalists in DC is a precursor to a global police force administered by the United Nations. The more these people push for total integration of military, regulatory, political and economic cohesion, the more they will alienate the people they are trying to subjugate.
With Europe having its industries severely impacted by the financial crisis and many of them relocating their production, to what extent can this eurobonds strategy boost the continent’s defense industry? Is it wishful thinking by the Estonian Prime Minister?
It’s not wishful thinking on her part, it’s part of the process the laid out on the proverbial whiteboard in Brussels. Europe embarked on a very dangerous path by purposefully gutting their domestic economies through COVID lockdowns to get the first round of Eurobonds agreed to. Now they are using the phantom threat of a Russian invasion to get the second round issued.
The incipient inflation and overly strong euro as a currency is pushing their industries offshore as a result. But that is, again, part of the strategy. Because for every BASF plant built in the US, what comes with it are the strings of EU regulations which the local and federal governments must adopt. These are designed to collapse the competitive advantage of the foreign nation by raising their costs locally.
It’s always a poisoned carrot with these people. Always.
The fly in this ointment for them is their having to raise interest rates to keep pace with the Federal Reserve. With each month that passes where the Fed refuses to back off on interest rates the more the risks to Brussels’ plans multiply. The entire project is predicated on using cheap credit dollars to fund the transition to their preferred hydrocarbonless future, while simultaneously hollowing out their biggest competitor, the US, by tying it down in useless skirmishes like Ukraine through NATO.
Reprinted with permission from Gold Goats ‘n Guns.
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