Market pressures on ailing Euro-zone countries persist and the Merkels and Sarkozys struggle to find an answer. The latest hype gaining ground is the idea of Eurobonds. These would be jointly issued bonds by all Euro-zone (or even EU) governments to finance government debt by national (or sub-national) governments.
Ironically, I remember several interesting discussions with my Italian federalist friends who have always lobbied within JEF and UEF to support the introduction of Eurobonds – to allow the EU (budget) to run deficits primarily for EU-wide infrastructure projects. I have always (and continue to) oppose this idea because I think we do not need another layer of debt in the EU while there is sufficient room for mobilising funds to invest in EU-wide infrastructure projects from the ineffective CAP and structural policy – and where necessary also from national coffers. While the financing mechanism for these Eurobonds would be the same, the current discussion is promoting Eurobonds on a very different level.
Eurobonds to solve the debt crisis
Eurobonds as advocated these days are seen as a tool to lower borrowing costs for peripheral Eurozone countries (Greece, Ireland etc.) who struggle with run-away interest rates on newly issued debt. They are practically cut off from the market, hence EU intervention mechanisms like the EFSF are now used to finance their debt. In some ways the EFSF is not so much different from the Eurobonds discussed today except the fact that the EFSF is primarily seen as a crisis intervention – and not a permanent – vehicle. Because (just like with the EFSF) Eurobond debt is guaranteed by countries like Germany or the Nordics borrowing is cheaper for such jointly guaranteed Eurobonds. So, why should we not issue Eurobonds Continue reading →
The financial crisis is far from being over, but what is interesting is that governments and the EU Commission are getting more innovative in using all means at their disposal to fight back. Commission President Barroso is announcing a “comprehensive European Union recovery plan ” for 26 November. If this will go as far as the Delors plan from early 1990s is another question though.
What really surprised me, however, was the reaction to the crisis in Hungary. Undoubtedly, after the first shock wave has dealt (well…?) with by the big western member states, it became high time to turn east now. Here Hungary is worst hit so far, so a massive rescue package has been prepared over the last days (read FT). It consists of 12.2 bn Euro from the IMF, 1 bn Euro from the Worldbank (the already provided 5 bn Euro credit from the ECB) and 6.5 bn Euro from the EU. Now the latter point is really interesting because the EU is invoking article 119 to step in. Even more surprising to me is the (first ever?) issueing of “Euro bonds” to finance the EU’s side of the Hungarian rescue package. Making use of such bonds has long been the demand of UEF. But their consideration were circling more around a general infrastructure back-up and investment programme and less of a concern for crisis intervention. If the bond move works out, it could set a worthy precedence for future intervention.
Die Ratsverordnung “zur Einführung einer Fazilität des mittelfristigen finanziellen Beistands zur Stützung der Zahlungsbilanzen der Mitgliedstaaten” ist hier als PDF verfügbar.
As Jon rightly points out in his blog comment, we are very happy about any reference or indeed support for this idea which needs to gather wider back-up. What is interesting is that Jacques Santer supported the idea in his speech at yesterday’s UEF Groupe Europe event in Brussels. He pointed out that he and other representatives of the small member states were the ones filing the proposal in the Convention.
Now, Jon and I have to see how we get supporters like Santer more prominently placed in the campaign. Some media have already indicated wider coverage, should we get some more prominent supporters. Any feedback welcome – in particular suggestions for politicians or celebraties to approach for support!?