PM sees E-bond idea gaining fans

Support is rising for the creation of common eurozone bonds, or E-bonds, to enable countries such as Greece to borrow more cheaply, Prime Minister George Papandreou said in Paris on Thursday.

Addressing a French Economy Ministry conference on reviving the global economy, Papandreou said jointly issued eurobonds could help overcome the single currency area?s sovereign debt crisis. Germany and France, the two biggest economies in the 17-nation eurozone, have so far firmly opposed the idea.

?There is growing support for the issuance of eurobonds as a financial instrument that can help Europe achieve its objectives,? Papandreou said, referring to proposals by Eurogroup chairman Jean-Claude Juncker and Italian Economy Minister Giulio Tremonti. ?Eurobonds will help reduce growing tensions in the sovereign markets. Eurobonds are not a substitute for this necessary adjustment we are making in countries including my own.?

Berlin and Paris argue that issuing eurobonds at a single interest rate would raise their own borrowing costs and remove a key market incentive for fiscal discipline in countries with high debts and deficits.

Papandreou said there was no room to stimulate the economy at the national level, ?but room does exist at the level of the European Union.? He continued, ?The European Union has great possibilities if we compare it to the United States, which has huge federal debt. There is no such debt at the EU level.?

Meanwhile the first issue of bonds by the European Union on Wednesday to fund its bailout of Ireland attracted demand of nearly four times the offer, with 20.8 billion euros bid for 5 billion euros? worth of bonds. The yield, or rate of return paid to investors on the five-year bonds, was around 2.59 percent, at the lower end of expectations. The European Commission said that the effective rate on the loan for Ireland will be 5.51 percent composed of the cost of borrowing for the EU at 2.59 percent plus a margin of 2.925 percent agreed in early December. Although the 2.59 percent yield was above that paid by eurozone countries with solid finances, even plus the EU margin payment, the money proves much cheaper for Dublin when compared with rates of around 7.8 percent on Irish five-year bonds.