European economists want bond guarantees dropped

A lasting assurance of the EU that would guarantee the solvency of apparently only illiquid but in fact insolvent states via community credits would have extremely negative consequences. Favourable credit conditions and the liability of the European community of states would give over-indebted countries a powerful incentive to repeat the mistakes of the past and to continue a policy of indebtedness at the expense of their EU partners.EU Vox

These economists are smart, they do not want EU funds used to guarantee bad lending by big finance, as doing that causes bad lending. The idea is to keep borowing rates high enough, up front, to cover any losses by the PIIGS in the future. The alternative is the fiasco of bond holders having to go political to get their losses covered.

Tim  Geithner, on the other hand, believes it perfectly reasonable to go globe trotting for Congressional funding while guaranteeing that California, flat on its back with no say in the matter, will somehow generate the debt service funds.  Bond holders beware, when Obama comes calling on California we will likely pay off the debt with Laser Money.