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13th Jul 2020

Nordic leaders sceptical about EU bonds

  • Th Hallgrimskirkja church in Iceland - Nordic leaders were lukewarm on the eurobond idea (Photo: Wikipedia)

As the debate over the issuance of eurozone-level bonds heats up, Nordic prime ministers are lukewarm on the idea, with Sweden saying there are "better answers" to deal with the problem of spreads in the cost of borrowing across the union.

"[The EU] should try other things," Swedish prime minister Fredrik Reinfeldt told reporters on Thursday (26 February) after a meeting in Iceland of the Nordic Council of Ministers - which brings together the premiers of Denmark, Finland, Sweden, Iceland and Norway - on Wednesday (26 February).

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"There was a co-ordinated answer to the crisis decided [by the European Council] last autumn, many of which measures are still not in place," he continued. "That should be the road forward. When these measures are in place thoroughly, that will open up credit markets."

Mr Reinfeldt added that public funds used to stabilise western European banks are not only there to aid the "mother banks, but also the daughter banks" in eastern Europe.

"That is also sending a message of stability, especially in the Baltics in the Swedish case."

The issuance of "eurobonds," would see the sale of bonds guaranteed by all 16 members of the single currency group, instead of just individual governments.

The new instrument has been suggested as a way to finance aid to eastern European EU states. But it would also help troubled eurozone members, such as Greece, Ireland, Italy, Portugal and Spain, borrow money more cheaply.

At the same time, it could make the cost of borrowing go up for the 11 EU states outside the circle, which comprise mostly eastern European countries, but also the UK, Sweden and Denmark.

The move has the support of Italy, Luxembourg and the International Monetary Fund. But Germany has repeatedly criticised the idea, knowing that as the largest eurozone economy it might have to pay out in the event of any sovereign default.

Poland this week vowed to do "everything" it can to prevent the creation of eurobonds, saying it aims to pull together a coalition of eastern European countries, the Netherlands and Nordic states ahead of this Sunday's informal EU summit in Brussels.

The Nordic members of the EU - Finland (which is in the eurozone), Sweden and Denmark (which are not) - said in Iceland on Wednesday that they have not been approached by eastern European states to join an anti-eurobond group.

But Finnish leader Matti Vanhanen told this website he has doubts if the EU treaty would allow the debt issuance.

"I'm a little sceptical that this can even happen. We have to check with our legal experts," he said.

Danish prime minister Anders Fogh Rasmussen said the EU should show some "flexibility" toward the plan, but also voiced concerns about the implications of the eurobond proposal.

"I still think that we should not water down national responsibility in financing public debt," he said. "It is essential that each government feel responsibility for sound economic policies, including how to finance public deficits."

"Maybe this national responsibility could be combined with the issuance of EU bonds, but the bond spreads can also be seen as an honest indicator from the markets, a red signal, showing the way for governments."

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