Hedge fund veteran George Soros, who funds groups such as Black Lives Matters, called for Europe to issue “perpetual bonds,” which never mature, as a way of staving off a coming depression that is the result of the lockdown.
The principal or amount that is borrowed in a perpetual bond does not get paid back, as the borrower repays only the interest. Soros said such bonds were issued by the UK during the Napoleonic Wars.
“They [consols] have a long history in both countries,”said Soros, the hedge fund veteran and founder of Soros Fund Management, in a transcript of a De Telegraaf interview. “In the UK they were used, among other things, to finance the wars against Napoleon and to finance the First World War. In the US they were introduced in the 1870s.”
The principal amount of a perpetual bond never has to be repaid. “Only the annual interest payments are due,” said Soros. “A €1 trillion ($1.09 trillion) bond would cost €5 billion ($5.45 billion) a year, assuming an interest rate of 0.5%. As the markets familiarize themselves with the new instruments, later tranches would attract a larger set of buyers and eventually the bonds would fetch a premium.”
Unfortunately, my suggestion for perpetual bonds has been confused with “corona bonds” and this has poisoned the debate, clarified Soros.
“The two have nothing to do with each other. Corona bonds have been decisively rejected, and with good reason, given that they require a degree of mutualization that is simply not acceptable.”