The higher the volume of eurobonds a country seeks to issue, the more severe the conditions the board would impose. The board should be able to impose its will, because denying the right to issueadditionaleurobondsoughttobeapowerfuldeterrent.
This leads directly to the third unsolved problem: what happens if a country is unwilling or unable to keep within agreed conditions? Inability to issue eurobonds could then result in a disorderly default or devaluation. In the absence of an exit mechanism, this could be catastrophic.Adeterrentthatistoodangeroustoinvokelackscredibility.
Greece constitutes a cautionary example, and much depends on how its crisis plays out. It might be possible to devise an orderly exit for a small country like Greece that would not be applicable to a large one like Italy. In the absence of an orderly exit, the regime would have to carry sanctions from which there is no escape—something like a European finance ministry that has political as well as financial legitimacy. Thatcouldemergeonlyfromaprofoundrethinkingoftheeurothatissobadlyneeded(particularlyinGermany).
Financial markets might not offer the respite necessary to put the new arrangements in place. Under continued market pressure, the European Council might have to find a stopgap arrangement to avoid a calamity. It could authorize the ECB to lend to governments that cannot borrow until a eurobond regime is introduced. But only one thing is certain:thesethreeproblemsmustberesolvediftheeuroistobeaviablecurrency.