Subscribe to EIR Online


50- and 100-Year Government Bonds Are a Sign of Europe’s Endless Zero Growth

May 22, 2016 (EIRNS)—The miserable truth about the long economic collapse in Europe was touched on by Jeremy Warner in a May 21 column in Britain’s Telegraph headlined "Europe’s Fifty-Year Bonds Signal Decades-Long Economic Slump."

Europe, Spain, France, and Portugal all have gotten strong investor interest in their 50-year bonds, Warner reports. Unmentioned by him is that Belgium and Holland are experimenting with 100-year government bonds. Note that these are general revenue bonds—simply government debt, unconnected with any capital or infrastructure investment, and thus just as speculative as a three-month Treasury bill.

"Complete fantasy," commented EIR Founding Editor Lyndon LaRouche.

"There is nothing happening in the trans-Atlantic economies but speculation in unreal assets, with purely nominal values."

Warner, in his column, asks what explains the success of this anomalous financial product, impossible to offer in normal times? And answers the question:

"Investors have simply made up their minds that Europe has become Japan, and is therefore destined for a decades-long deflation.... They have resigned themselves to a world of nil growth for a decades to come."

"There is plenty of evidence for such a long-term Western malaise, even from the U.S.," Warner writes,

"where with companies unable to find profitable opportunities for their cash generation, share buy-backs have reached record levels. If a CEO cannot generate any top line [revenue] growth, he can at least massage the bottom line [profit], and therefore his bonus, by shrinking his share capital.

"Where there’s no opportunity for growth, investors will seek out the lowest-risk alternatives for their money. Government bonds, where risk of default is low to non-existent, are the home of choice." Apparently non-existent, he explains, because the ECB [European Central Bank] seems to stand ready to monetize government debt indefinitely."

Back to top