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12th Aug 2022

Rehn questions political appetite for eurobonds

  • The path to eurobonds would be long and difficult, the commission indicated Monday (Photo: ec.europa.eu)

EU monetary affairs commissioner Olli Rehn has questioned whether euro countries are really prepared to accept the loss of national fiscal power that would come with the introduction of eurobonds - deemed by many as the principle means of exiting the eurozone debt crisis.

Speaking on Monday (29 August) of the “rather high expectations” surrounding eurobonds - which would lead to the mutualisation of eurozone debt - Rehn warned it would mean “substantially reinforced fiscal surveillance and policy coordination”.

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“This would have unavoidable implications for fiscal sovereignty, which calls for a substantive debate in euro area member states to see if they would be ready to accept it,” he told the European Parliament’s economic and monetary affairs committee.

Illustrating the lengthy process that would be involved, Rehn said the commission is preparing a report on the different “scenarios” for how eurobonds could work in practise and would only take “further steps” if “common ground” between euro countries could be found.

Eurobonds have been held up as something of a panacea for the ailing eurozone as it would lower the borrowing costs of struggling member states.

But Berlin, already struggling domestically to win approval for a second bailout to Greece, has so far kept the issue off the agenda, amid fears that its own relatively favourable borrowing costs would be driven up.

Critics also suggest that free-spending countries will have no incentive to tighten their purse-strings if bonds are issued collectively in the eurozone.

The six-pack

With the idea of eurobonds raising the question of how far member states are ultimately prepared to integrate to help solve the eurozone crisis, speakers during Monday’s especially-convened meeting were quick to point to the symbolic as well as practical importance of getting agreement on issues already on the table.

Polish finance minister Jacek Rostowski said a quick deal was needed on the so-called six-pack of economic governance legislation, designed to prevent such a crisis ever happening again.

Currently stuck in the legislative process due to a dispute between MEPs and governments over how automatic sanctions for misbehaving states should be, Rostowski said it was a “litmus test” for the EU.

If there is no agreement, he said, it would put in doubt the whole “community method” - pooling of national sovereignty - as it would have been seen to “have failed in such dramatic times”.

Meanwhile, eurozone chief Jean-Claude Juncker sought to convince MEPs that member states were near to putting out a fire on another front.

He told them that euro area states are “very close to finding a solution” that would meet Finland’s demand for Greek collateral in return for getting the second €109 billion bailout, agreed in July.

Noting that he was “not happy” with Helsinki’s request, Juncker said he expected agreement by the middle of September.

"People shouldn't think that the collateral guarantee difficulties will stop us from implementing the July 21 decisions,” he said, after Finland’s move risked derailing the second bailout agreement and deepening the eurozone crisis still further.

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