Saturday

2nd Mar 2024

Brussels sees no serious opposition to eurobonds

  • Commission: 'Stability Bonds must not lead to a reduction in budgetary discipline' (Photo: Images_of_Money)

The European Commission has launched a polemic on eurobonds - a proposal that eurozone countries should guarantee one another's debt, taking member states into uncharted territory in terms of solidarity and trust.

The executive put forward its ideas in a 38-page discussion paper on Wednesday (23 November), which sets out three scenarios for eurobonds ranging from a "full replacement" of national bonds to a partial replacement.

Read and decide

Join EUobserver today

Get the EU news that really matters

Instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

Announcing the controversial ideas, European Commission President Jose Manuel Barroso said it was part of his institution's "duties" to bring such discussions forward and called on member states to approach the issue with an "open mind" that is "free of dogma".

The comments particularly concern Germany, the eurozone biggest economy, which has been vocal in its opposition - expressed once again on Wednesday morning by the Chancellor, Angela Merkel - to eurobonds as an immediate solution to the eurozone's debt crisis.

The ideas are first to be discussed publicly, after which the commission will come out and say which option it prefers. The 'green paper' approach is a way of having much of getting the adversarial discussion out of the way before a legislative proposal is put on the table.

The idea of eurobonds - to be issued jointly by the 17 eurozone governments at a single interest rate - has been gaining some traction as the eurozone seeks a way out of its sovereign debt crisis.

At the moment, weaker eurozone economies have to pay investors high interest rates to hold their bonds. A eurobond could lower the interest rate. But there are fears in Berlin that it will result in the country paying higher rates to borrow money.

Barroso, for his part, believes that Berlin's opposition is merely on "timing" meaning "there is no opposition on principle." He also noted that past highly controversial ideas, such as allowing the eurozone bailout fund (the EFSF) to make purchases on the secondary bond market were eventually agreed by member states.

Three options

Of the three options the full eurobond, replacing the issuance of all national bonds, is seen as having the strongest "potential positive effects on stability and integration".

However it would require a change to the EU treaties - a long and arduous process with no guaranteed outcome - as would the second option which would see national bonds partially substituted by eurobonds.

The third "most limited" option - whereby eurobonds would partially cover issuance of national bonds but with no joint guarantees - is judged as the most hassle-free to get implemented but the one least likely to assuage the markets.

Moral hazard

The paper devotes a whole section to moral hazard, a particular bugbear of fiscally upright countries such as Germany, the Netherlands and Finland, who believe that the mutualisation of eurozone debt would allow less fiscally well-behaved countries to overspend with impunity.

"Stability Bonds must not lead to a reduction in budgetary discipline among euro-area member states" says the paper.

To reinforce the point, Wednesday's publication of the eurobonds discussion paper coincided with the publication of two draft laws that hugely increase Brussels' oversight over national spending, allowing it to make budget recommendations and to sanction states who appear to be in danger of heading off the correct spending track.

But even if the commission considers itself daring for stepping into the eurobond debate with an ideas paper, others say the proposals are meaningless without installing the European Central Bank (ECB) as a lender of last resort.

The ECB has to "act within the framework of the treaty" said Barroso, with EU rules apparently ruling out any move to make the bank the ultimate guarantor.

"The proposed 'stability bonds' will be toothless without an explicit provision of a lender of last resort support by the European Central Bank," said Sony Kapoor, managing director of Re-Define, an economic think-tank.

EU commission to present eurobonds plans next week

In a bid to stem the tide of the debt crisis engulfing the eurozone, the twin leaders of the European Union, Herman van Rompuy and Jose Manuel Barroso, have announced plans for further integration.

Rehn questions political appetite for eurobonds

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.

Merkel and Sarkozy meet as Berlin rejects eurobonds

The leaders of France and Germany are meeting on Tuesday in a further attempt to stem the eurozone debt crisis following last week’s strong market turbulence, but Berlin has ruled out any mutualisation of euro countries’ debt.

Magazine

Eurobonds could steer the EU out of crisis, regions chief says

One way to revive the European economy without burdening national budgets would be to set up eurobonds and use them to finance pan-European transport networks and broadband connections, the head of EU's regional assembly said in an interview.

Rehn backs 'smart' mutual debt fund

The idea of mutualising eurozone debt remains as controversial as ever but economic affairs commissioner Olli Rehn has spoken out in favour of a halfway house solution.

Opinion

Why are the banking lobby afraid of a digital euro?

Europeans deserve a digital euro that transcends the narrow interests of the banking lobby and embodies the promise of a fairer and more competitive monetary and financial landscape.

Latest News

  1. EU docks €32m in funding to UN Gaza agency pending audit
  2. 'Outdated' rules bar MEP from entering plenary with child
  3. Commission plays down row over Rwanda minerals pact
  4. EU socialists set to anoint placeholder candidate
  5. Why are the banking lobby afraid of a digital euro?
  6. Deepfake dystopia — Russia's disinformation in Spain and Italy
  7. Putin's nuclear riposte to Macron fails to impress EU diplomats
  8. EU won't yet commit funding UN agency in Gaza amid hunger

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic Food Systems Takeover at COP28
  2. Nordic Council of MinistersHow women and men are affected differently by climate policy
  3. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  4. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  5. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  6. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?

Stakeholders' Highlights

  1. Georgia Ministry of Foreign AffairsThis autumn Europalia arts festival is all about GEORGIA!
  2. UNOPSFostering health system resilience in fragile and conflict-affected countries
  3. European Citizen's InitiativeThe European Commission launches the ‘ImagineEU’ competition for secondary school students in the EU.
  4. Nordic Council of MinistersThe Nordic Region is stepping up its efforts to reduce food waste
  5. UNOPSUNOPS begins works under EU-funded project to repair schools in Ukraine
  6. Georgia Ministry of Foreign AffairsGeorgia effectively prevents sanctions evasion against Russia – confirm EU, UK, USA

Join EUobserver

EU news that matters

Join us