EFSF-ESM, ECB, Eurobonds, the IMF, or "National Debt Funds"?
December 9, 2011 • 1:09PM

There such disagreements among the EU "leaders" about the details of the desired super-bailout of the banks, that none of the three main options that have been on the table so far, may reach consent in the next two days' EU Summit. These three options are:        

1) an expanded EFSF role and/or a rescheduling of implementation of the ESM from 2013 to 2012;        

2) turning the ECB into a bail-outer of last resort ;        

3) eurobonds for all of the eurozone countries, issued by a new central and supranational debt agency.        

If none of these three works, German Finance Minister Wolfgang Schäuble has a special proposal up his sleeve: namely, that every country in the euro zone set up an individual fund for all sovereign debt over and above 60% of its GDP, the maximum allowed according to euro zone rules. The so-called "redemption funds" would then be paid down annually with the goal of paying them off completely in 20 years. Schäuble said the program could be modeled on a similar fund set up by Germany to pay down the debts taken on as a result of reunification in 1990. (Germany is still paying off that "debt," which should had been cancelled by Chancellor Merkel, who hinted last week that she may address the idea at the EU Summit.        

Lastly, there are also van Rompuy's own proposals which he will present at the Summit, though he already leaked them to Reuters. He calls on a several-step approach to reforms and claims that some of it can already be adopted without changes in the treaties. Among those reforms, the adoption of the "golden rule," overviewed by the European court of justice, and a mechanism for centralized registration and control of Eurobonds, which he proposes to launch rapidly. A second phase would be to go further in European integration with a fiscal union, etc. This could be done by using the mechanisms of reinforced cooperation among a group of states. Finally, what van Rompuy really wants, is that the EMS be given the status of a credit institution, which will give it access to loans from the ECB, to lend to banks in difficulty.        

Finally, Tim Geithner has been going around Europe saying the U.S. supports a bigger role for the IMF, i.e., it could receive bilateral contributions from individual central banks, which would then allow it to lend to Italy or to Spain.