"Is there ANY solution for Europe other than to issue Euro bonds?"

Eoin Treacy's view Thank you for this topical question. The solution until recently has been to force austerity on debtors such as Greece, Ireland and Portugal in an effort to gain time to recapitalise the French and German banking sectors and to avoid the prospect of default by a larger economy such as Spain or Italy. However over the last few weeks, spreads for Spanish and Italian bonds have surged indicating the failure of this policy. Investors no longer appear willing to give the Eurozone the time it wants to hobble through this crisis. A more substantive solution is now required.

Spreads of over 1000 basis points suggest investors have concluded that Greece and potentially other peripheral Eurozone countries are incapable of repaying their debts in full. They appear to have discounted increased revenue raising, spending cuts and bailouts. The figures are seen as just too high.

The prospect of creditor participation has been discussed widely over the last month. Everything from rolling over expiring maturities to haircuts and outright default has been proposed. If we start from the proposition that politicians are intent on the continuance of currency union then the prospect of supranational bond issuance being part of a potential solution increases.

Creditor participation is a virtual certainty for Greek debt at this stage and potentially also for Ireland and Portugal. Subsequently, access to credit at affordable rates is an overriding concern which bailouts to date have failed to achieve. Bond issuance with the backing of the Eurozone in aggregate rather than a single state would help to achieve that goal.

The European Investment Bank and the European Bank for Reconstruction and Development are two existing issuers of pan European debt which have AAA ratings. Widened powers for the EFSF may allow it to issue similar bonds. Any such measure will have to be back stopped by significant concessions in terms of national fiscal control but these have already been made by a number of countries and were always likely to be a part of a successful currency union in any case.

Much hope hangs on the outcome of the EU summit due to start on Thursday. However, this is not a problem which will have a quick fix. A solution will require considerable political will, sacrifice and vision. These are attributes which have been in short supply to date. Considerable additional capital will be required and this will take time to organise.