The proposal is based on a plan by the German Council of Experts. Each country puts all debt above the Maastricht ceiling of 60pc of GDP into the fund. Each would be responsible for its own debt but would be able to borrow through joint bonds, raising money on Germany’s credit card.
The debt would be paid off over 20 years, with each state putting up foreign reserves, gold and other collateral to ensure compliance. It is the opposite of fiscal union: the eurozone would return to fiscal sovereignty and, since the liabilities would be fixed and the fund self-liquidating, it would comply with Germany’s constitution.
In other words pool all the debt above a certain ceiling and stick it into one big sinking fund and monetize it using Germany's credit rating. Then you get a bunch of hard assets from each nation to collateralize the debt. I wonder if this means Spain would have to put up piles of gold and their airports and highways or something to hold against the debt in this fund?
It sounds like a weird kludge at first glance but I would love to see some eminent economists get out their green eye-shades out and pour over this idea. It's better than the whack-a-mole response that they are doing now.