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25th Aug 2019

Common debt fund needs EU treaty change: report

  • No eurozone debt fund without treaty change, says commission (Photo: EUobserver)

The EU treaties and democratic constraints block the way to establishing a fund to pool eurozone debt, according to a European Commission report released Monday (31 March).

The report by a commission expert group led by a former executive board member of the European Central Bank, Gertrude Tumpel-Gugerell, effectively kills off the prospect of a debt redemption fund being established in the near future.

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It concludes that it "may be considered prudent to first collect evidence on the efficiency of that governance before any decision schemes of joint issuance are taken."

The idea behind the redemption fund is that it would pool all eurozone government debt exceeding the 60 percent threshold in the bloc's stability pact. Each country would be responsible for reducing its debt pile by 3 percent a year for 20 years.

But the plan has met strong opposition from a number of governments, including Germany, anxious that debt pooling would leave their taxpayers liable for other countries' debts.

They also fear that such a fund would mean an increase in the interest rates paid by Germany and other countries with top credit ratings.

The report makes clear that the current EU treaties do not allow the bloc to set up either a debt redemption fund or a eurobills scheme through EU legislation.

Eurobills would involve the joint issuance of short-term government bonds, with maturities of between six months and two years.

"At most, absent treaty change one could argue that it is possible to set up a temporary eurobills scheme through a combination of an Article 352 regulation [on enhanced co-operation with an intergovernmental agreement]," it states.

Even then, however, "the EU's political institutions could not exercise any decision-making power".

Meanwhile, going the intergovernmental treaty route for a fourth time since 2010 would "present serious shortcomings and problems in terms of efficiency, democratic legitimacy and accountability".

"We have virtually exhausted the options under the current Treaty," said the bloc's economic affairs commissioner Olli Rehn in a statement.

MEPs had demanded the report as one of their conditions for supporting the EU's most recent economic governance legislation - known as the two-pack - in 2013.

Deputies were also keen on introducing a system of eurobonds in a bid to reduce the interest rates faced by the bloc's periphery countries.

However, with market pressures on government bond spreads greatly reduced since ECB boss Mario Draghi launched the bank's Outright Monetary Transactions (OMT) programme in the summer of 2012, which allows the bank to buy potentially unlimited supplies of eurozone government bonds, political demand for new measures has rapidly diminished.

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