EU Economy
France's 10-year bond yield below 1% for first time; Draghi pushes for economic union
By Michael Hennigan, Finfacts founder and editor
Nov 27, 2014 - 2:54 PM

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Mario Draghi, ECB prsident, and Matteo Renzi, Italian prime minister, Jun 2014

France's 10-year bond yield has fallen below the 1% the first time in history, as investors expect the European Central Bank will begin buying sovereign bonds early in the new year to spur growth. Meanwhile in Helsinki, Mario Draghi, ECB president, called for an economic union in the euro area as the risk of breakup would persist until the EU was given sweeping powers to control countries’ fiscal policies and reform efforts.

The French 10-year yield fell 5 basis points to 0.995%, the lowest on record. Yields for Germany, Spain, Italy, Norway, Portugal, Sweden and Ireland also fell to new lows.

The German bund yield fell to 0.71%; Finland's rate is at 0.80%; Sweden is at 1.03% and Ireland at 1.40%.

The EU must move on from its immediate preoccupation on the crisis in public finances to prioritise growth, Michel Sapin, France’s finance minister, intends tell his counterpart Michael Noonan at their meeting in Dublin on Friday, according to an interview with The Irish Times.

Sapin, who praised Ireland’s abolition of the double Irish tax system as “heading in the right direction”, told The Irish Times that France would shortly be proposing to the Council of Finance Ministers rapid action on measures to curb tax evasion. He said that thee erosion of the tax base by virtual companies had to be ended.

Mario Draghi outlined the minimum requirements needed to complete monetary union in a way that offers stability and prosperity for all its members in a speech to students of the University of Helsinki.

Acknowledging that, “for all its resilience, our union is still incomplete,” Draghi argued that, ultimately, member states “have to be better off inside than they would be outside.”

“If there are parts of the euro area that are worse off inside the Union, doubts may grow about whether they might ultimately have to leave”.

“The euro is – and has to be – irrevocable in all its member states, not just because the treaties say so, but because without this there cannot be a truly single money”, he said.

In the absence of permanent fiscal transfers among member states, there are two minimum requirements to achieve these objectives: the first is that all euro area countries need to be able to thrive independently, the second is that euro area countries need to invest more in other mechanisms to share the cost of shocks.

In a monetary union, the economic performance of any single country cannot be seen as a purely national concern. “There is a strong case for sovereignty over relevant economic policies to be exercised jointly. That means above all structural reforms”, the president remarked.

But even so, economic adjustments can have short term costs.

To ensure that countries are better off being in the Union when a shock hits than they would be outside, “we need other ways to help spread those costs…there is a particular onus on private risk-sharing to play this role”. In this context Draghi said barriers to capital markets integration needed to be addressed with urgency.

Sovereign debt needs also to act as a safe haven in times of economic stress. It can do so first of all through a strong fiscal governance framework. Secondly, by having some form of backstop for sovereign debt in place. “Over the longer-term,” Draghi concluded, “it would be natural to reflect further on whether we have done enough in the euro area to preserve at all times the ability to use fiscal policy counter-cyclically. But it is also clear that… this could only take place in the context of a decisive step towards closer Fiscal Union”.

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