Eurobond (eurozone)
Eurobonds or stability bonds were proposed
Eurobonds have been suggested as a way to tackle the 2009–2012 European debt crisis as the indebted states could borrow new funds at better conditions as they are supported by the rating of the non-crisis states. Because Eurobonds would allow already highly indebted states access to cheaper credit thanks to the strength of other eurozone economies, they are controversial, and may suffer from the
Blue bond proposal
In May 2010 the two economists
The authors argue that while their concept is not a quick fix, their Blue Bond proposal charts an incentive-driven and durable way out of the debt dilemma while "helping prepare the ground for the rise of the euro as an important
European Commission proposal
On 21 November 2011 the European Commission suggested European bonds issued jointly by the 17 eurozone states as an effective way to tackle the
On 29 November 2012, European Commission president
Three approaches to eurobonds
The green paper lists three broad approaches for common issuance of eurobonds based on the degree of substitution of national issuance (full or partial) and the nature of the underlying guarantee (joint and several or several).[4]
- Full eurobonds with joint liability: This option suggests to fully replace the entire national issuance by eurobonds, each EU member being fully liable for the entire issuance. According to the European Commission "this would have strong potential positive effects on stability and integration. But at the same time, it would, by abolishing all market or interest rate pressure on Member States, pose a relatively high risk of moral hazard and it might need significant treaty changes."
- Partial eurobonds with joint liability: The second option would pool only a portion of borrowings, again guaranteed by all. This means EU member states would still partly issue national bonds to cover the share of their debts beyond a certain percentage of GDP not covered by eurobonds. The Commission does not state a specific volume or share of financing needs that would be covered by national bonds at the one hand and eurobonds on the other. However, the proposal is similar to that of the TFEU treaty.[7]
- Partial eurobonds without joint guarantees: According to the third option that is similar to the blue bond proposal, eurobonds would again cover only parts of the debt (like option 2) but without joint guarantees. This could impose strict entry conditions for a smaller group of countries to pool some debt and allow for the removal of countries that do not meet their fiscal obligations. Due to "a mechanism to redistribute some of the funding advantages ... between the higher- and lower-rated" governments, this option aims to minimise the risk of moral hazard for the conduct of economic and fiscal policies. Unlike the first two approaches, this would involve "several but not joint" government guarantees and could therefore be implemented relatively quickly without having to change EU treaties.
Suggested effects
According to the European Commission proposal the introduction of eurobonds would create new means through which governments finance their debt, by offering safe and liquid investment opportunities. This "could potentially quickly alleviate the current sovereign debt crisis, as the high-
The governments of those states that most people would like to take over those debt risks do not think that this is a good idea and see other effects. They do not understand why they should help a group of states that have excessively borrowed and circumvented the EU contracts for many years should by making it easier for them to borrow more via Eurobonds. Germany is one of those sceptical states,[8][9] together with Austria,[10] Finland and the Netherlands.[11]
Tighter fiscal rules
Presenting the idea of "stability bonds",
On 9 December 2011 at the European Council meeting, all 17 members of the euro zone and six states that aspire to join agreed on a new intergovernmental treaty to put strict caps on government spending and borrowing, with penalties for those countries that violate the limits.[20] All other non-eurozone countries except Great Britain are also prepared to join in, subject to parliamentary vote.[21]
Reactions
Italy and Greece have frequently spoken out in favour of eurobonds, the then Italian Minister of economy Giulio Tremonti calling it the "master solution" to the eurozone debt crisis.[22] A growing field of investors and economists share this belief, saying eurobonds would be the best way of solving the debt crisis.[7]
However, Germany remains opposed to debt that would be jointly issued and underwritten by all 17 members of the currency bloc, saying it could substantially raise the country's liabilities in the debt crisis. Barroso maintained that Germany did not oppose joint issuance in principle, but questioned the timing of it.
Counter proposals
On 28 November 2011, German newspaper Die Welt reported that Germany, France and four other AAA-rated EU members may issue common "elite bonds" (or "triple A bonds") in a bid to raise more money at low interest rates for themselves and, under strict conditions, to help also indebted euro region members.[24] Austria, Finland, Luxembourg and the Netherlands are said to be part of the plan aimed at stabilising the top-rated countries and calming financial markets. Common bonds of the six countries are expected to have an interest rate of 2 percent to 2.5 percent.[25]
Following the 2011 proposal made by the "five wise economists" from the German Council of Economic Experts,
In January 2012, a working group within the European League for Economic Cooperation unveiled a blueprint for a Euro T-Bill Fund. The proposal, which elaborates further on a concept first introduced by Rabo Bank's Chief Economist Wim Boonstra, calls for a temporary fund of only four years and bonds with a maturity of a maximum of two years.[26]
In March 2012, Boston Consulting Group also followed up on the German Council proposal, agreeing that "the scope of the problem is too great to be solved by the European Stability Mechanism or the medium-term injection of liquidity by the European Central Bank" and favouring limited-scope Eurobonds.[27]
In June 2012, German chancellor Angela Merkel firmly rejected any German support for Eurobonds.[28]
Critics
The planned introduction of Eurobonds has been criticised by economists for reasons such as the
Corona bonds
Spanish and Italian leaders have called for jointly issued "corona bonds" in order to help their countries, hard-hit by the outbreak of
Despite the fact that the European Commission and European Central Bank released billions in special funds, relaxed the limits for budget deficits and government debt of EU countries, some members (such as France, Italy, Spain, Belgium, Ireland, Portugal, Greece, Slovenia and Luxembourg) demanded more to be done in relation to the COVID-19 pandemic. However, Germany which was the strongest opponent of eurobonds, was supported by Austria, the Netherlands, Finland and Estonia. In the meantime, Italian Prime Minister Giuseppe Conte questioned: "What do we want to do in Europe? Does each member state want to go its own way?",[37] he also added: "If we are a union, now is the time to prove it", in Germany's weekly Die Zeit.[38] Conte also described the European Stability Mechanism (ESM) as "completely inadequate" to face the crisis.[39]
Later on, European Commission chief Ursula von der Leyen mentioned that "Today Europe is mobilising alongside Italy. Unfortunately, this has not always been the case", she later added that EU "will allocate up to 100 billion euros ($110 billion) to the hardest hit countries, starting from Italy, to compensate for the reduction in the wages of those working on shorter hours".[38] The main opposition to the plan by the Commission came from the so-called Frugal Four.
Eventually, in July 2020 the European Council agreed to issue European sovereign bonds of 750 billion €, branded Next Generation EU, to support member states hit by the COVID-19 pandemic.[40]
See also
References
- ^ "The euro zone crisis: Eurobonds: il conto, la cuenta, l'addition, die Rechnung". The Economist. 29 May 2012. Retrieved 13 November 2012.
- Bruegel. 18 October 2013. Retrieved 23 September 2018.
- ^ Bruegel Policy Institute. May 2010. Archived from the originalon 9 December 2011. Retrieved 24 November 2011.
- ^ a b c d "European Commission Green Paper on the feasibility of introducing Stability Bonds". European Commission. 23 November 2011. Retrieved 24 November 2011.
- ^ "EU Commission's Barroso unveils plan for euro's future". BBC. 29 November 2012. Retrieved 29 November 2012.
- Sueddeutsche. 29 November 2012. Retrieved 29 November 2012.
- ^ a b c "Barroso to table eurobond blueprint". Euractiv. 17 November 2011. Retrieved 21 November 2011.
- ^ Heller, Gernot (1 December 2011). "German "No" to euro bonds non-negotiable: Economy minister". Reuters. Retrieved 16 December 2012.
- ^ "Poll: Germans strongly against eurobonds". Reuters. 25 November 2011. Retrieved 16 December 2012.
- ^ "Austria opposes eurobonds". CBS News. 23 November 2011. Archived from the original on 24 November 2011. Retrieved 16 December 2012.
- ^ "Eurobonds mooted as eyes turn to Germany". ABC News. 24 November 2011. Retrieved 16 December 2012.
- ^ "Was kosten Eurobonds?" (PDF). Ifo Institute for Economic Research. 17 August 2011. Archived from the original (PDF) on 21 January 2016. Retrieved 5 January 2012.
- ^ Spiegel Online. 23 August 2011. Retrieved 5 January 2012.
- ^ "Die Kosten für Euro-Bonds (Robert von Heusinger)". Frankfurter Rundschau. 18 August 2011. Retrieved 5 January 2012.
- ^ "Regierung rechnet mit Milliardenkosten durch Euro-Bonds". Spiegel. 20 August 2011. Retrieved 5 January 2012.
- ^ "Eurobonds: A cure or a curse?". Deutsche Welle. 23 November 2011. Retrieved 5 January 2012.
- ^ "Europe Agrees to Basics of Plan to Resolve Euro Crisis". Associated Press. 21 November 2011. Retrieved 21 November 2011.
- ^ "EU's Barroso: Will present options on euro bonds". Reuters. 14 September 2011. Retrieved 21 November 2011.
- European Voice. 23 November 2011. Retrieved 21 November 2011.
- ^ Baker, Luke (9 December 2011). "WRAPUP 5-Europe moves ahead with fiscal union, UK isolated". Reuters. Retrieved 9 December 2011.
- ^ "European Council Press releases". European Council. 9 December 2011. Retrieved 9 December 2011.
- ^ "Italy calls for euro bonds, UK backs fiscal union". Reuters. 13 August 2011. Retrieved 24 November 2011.
- ^ "EU's Barroso wants tight euro zone budgets control". MSNBC. 23 November 2011. Retrieved 24 November 2011.[dead link]
- EU Observer. 28 November 2011. Retrieved 30 November 2011.
- ^ "EU Nations led by Germany May Issue 'Elite Bonds,' Welt Reports". Bloomberg. 28 November 2011. Retrieved 30 November 2011.
- ^ "Archived copy" (PDF). Archived from the original (PDF) on 21 August 2013. Retrieved 27 August 2012.
{{cite web}}
: CS1 maint: archived copy as title (link) - ^ Delamaide, Darrell, "Last chance to avoid nasty euro train wreck", MarketWatch, 12 April 2012. With link to “Fixing the Euro”, the BCG paper. Retrieved 2012-04-12.
- ^ spiegel.de:Kanzlerin Merkel schließt Eurobonds aus (german)
- ^ Gros, Daniel (24 August 2011). "Eurobonds: Wrong solution for legal, political, and economic reasons". voxeu.org. Retrieved 10 May 2017.
- ^ "The Lisbon Treaty". Archived from the original on 19 November 2011. Retrieved 25 November 2011.
- ^ Breidthardt, Annika (8 September 2011). "German court may silence euro bond debate – for now". Reuters. Retrieved 17 January 2012.
- ^ EU Fails to Agree on 500 Billion-Euro Response to Virus Crisis
- ^ "The EU can't agree on how to help Italy and Spain pay for coronavirus relief". CNN. Retrieved 28 March 2020.
- ^ "Virtual summit, real acrimony: EU leaders clash over 'corona bonds'". POLITICO. Retrieved 28 March 2020.
- ^ a b "What are 'corona bonds' and how can they help revive the EU's economy?". euronews. 26 March 2020. Retrieved 28 March 2020.
- ^ "Spain Pushes for Joint European Debt Issuance to Fight Coronavirus Impact". The New York Times. Reuters. 1 April 2020. Retrieved 2 April 2020.
- ^ "Coronabonds and the idea of European financial unity". DW. 1 April 2020.
- ^ a b "EU chief apologises to Italy but baulks at 'coronabond' request". France24. 2 April 2020.
- ^ Conte stronca il Mes: inadeguato, Milano Finanza
- ^ Special European Council, 17-21 July 2020 - Main results Retrieved 15 November 2020.
External links
- (Issue 2010/03, May 2010)
- Bruegel: Eurobonds: The blue bond concept and its implications Archived 23 May 2013 at the Wayback Machine(March 2011)
- European Commission: Green paper on stability bonds (November 2011)
- European League for Economic Cooperation: The ELEC “Euro T-Bill Fund” (January 2012)