Submitted by Taps Coogan on the 4th of July 2019 to The Sounding Line.

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CNBC’s Rick Santelli recently spoke with Praxis’ Yra Harris about the significance of Christine Lagarde being picked to head the ECB. Both men feel that Christine Lagarde, who is more politician than banker, is there to try to finally push through the long-discussed idea of a ‘Euro-bond.’

Some excerpts from Rick Santelli and Yra Harris:

Santell:

“There’s only one person that’s actually like a federal employee in the Eurozone and that’s the head of the ECB. Truly, they represent everything. Now they have a quasi-politician, not a banker, in charge (Christine Lagarde). I don’t care about PhDs, what do you think?”

Harris:

“Worst pick that I can imagine… The interesting part of this is Angela Merkel, the Chancellor of Germany, recused herself from the vote because of some sense of disdain about this pick from her political party…”

“(The ECB) thinks Christine Lagarde is going to have the political heft to create a (Euro-Bond)… Whatever is on that balance sheet at the ECB, they will meld it into a Euro-Bond. So, from the back door they are going to come and create a harmonized fiscal situation through the creation of a Euro-Bond…”

Santell:

“Whether this works or not, it’s the only avenue to get out of the swamp with regards to negative rates. But then there is a real problem with the ECB. They’re on the hook for everything then.”

Harris:

“They’re (the ECB) not on the hook, Germany is on the hook…”

The absence of a consolidated ‘Euro-bond’ means that the national debts of the various Eurozone member states end up forming the ‘risk free’ backbone of the Eurozone financial system. Meanwhile, the largest issuer of such debt is the Eurozone’s weakest and most rebellious member: Italy. That gives countries like Italy significant political leverage over the ECB and the EU. If Italy breaks the Eurozone’s rules on fiscal spending, for example, the ECB cannot meaningfully punish Italy without undermining the entire Eurozone financial system.

In order to politically federalize the Eurozone, the power of government spending decisions must be removed from individual member states and transferred to the ECB. To do that, the risks posed to the Eurozone financial system by member countries like Italy must be eliminated. By consolidating the member state debts, the ECB becomes the guarantor of the new Euro-bond debt. Not only does that minimize the impact of an Italian default, in doing so, it eliminates Italy’s negotiating leverage and political sovereignty.

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