A country in the Eurozone is required to pay a high interest rate to borrow money from another country in the Eurozone. This is the first attempt to make all the Eurozone countries to be responsible for helping each other without claiming any help from the outside European Union (EU). As long as Maastricht treaty restrict the rate of national debt balance to GDP, Eurozone countries are not able to incur their national debt enough to stimulate their economy. Therefore, the relatively well-off countries joining the European Monetary Union (EMU) are expected to subsidise the stagnating countries.
However, lending money to individuals with a high risk premium requires charging a high interest rate enough to cover the risk premium because the lender should not make a fatal loss on a budget, which causes the lending country to fall in to another recession.
This Eurozone macroeconomic policy is very unstable!
Mr. Jean Claude Trichet(Read about his articule in this blog!) also highly criticised this unstable fiscal rule, charging high interest rate for countries borrowing from another country inside the Eurozone.
Mr. Trichet is remarkably intelligent enough to realise the current Eurozone economic system is notoriously unstable.
The Eurozone should install the European federalism with the ECB bond by relinquishing the right to incur national debt in all the Eurozone nations! Otherwise, the EMU should be dissolved (i.e. abolish Euro, the common currency), and remove the restriction on incurring national debt stated by Maastrict treatyin order to enable them to set their own interest rate for their own monetary policy to adjust their own money supply and their liquidity to their economic stimulus.
If the ECB bond is incurred, the value of national debt traded in the international market is determined by the economic performance of the Eurozone economy. Instead of penalising a relatively well-off Eurozone country, the Eurozone economy should incur the bond with their collective responsiblity. If the debt is incurred by the collective responsibility, the risk and the interest rate is spread out to all the Eurozone nation. Therefore, one country doesn't have to pay an excessively high interest rate meanwhile a relatively well-off country does not need to be penalised (Although they might need to contribute to pay the interest rate of the ECB bond, but the cost and the risk are still obviously lower than the cost and the risk of lending money to a country in a terminal recession).
In addition, if the entire Eurozone economy is expected to recover by the fiscal stimulus financed by the debt, the value of the ECB bond will continue increasing so that more traders will purchase it. A high volume of finance flow from both private companise, individual citizens, and the government outside the Eurozone will be expected as the ECB bond is introduced. This is the golden rule of the national debt. As the credit rating of the ECB increases, the limitation of incurring the debt will be less restricted unlike the current Eurozone system.
The current Eurozone system will stagnate the Eurozone economy further. In order to avoid this situation, the Eurozone economy "has to" either dissolve the EMU or establish the common treasury under the Euro-Federalism. Nevertheless, in order to establish the more stable system than now by keeping the common currency, a furthermore efficient fiscal policy (spending on the government expenditure with a lower cost of taking tax) needs to be put into practice. On the top of it, the fiscal policy in all the Eurozone country has to be strictly counter-cyclical to their own business cycle relative to the one of the entire Eurozone in order to adjust their economy to be harmonised with the entire Eurozone economic environment. One country will no longer be able to diviate their fiscal policy rule from the other Eurozone countries.
