The advance of coronavirus has led to an economic cataclysm in Europe and several governments have already called for common stimulus measures, such as the issuance of coronabonos, a debt instrument, among others, the implementation of which must be negotiated this afternoon by the heads of state and government of the European Union.
These bonds allow the mutualization of the debt and risks of all countries under the EU umbrella The European Central Bank would issue debt with greater collateral than each country’s sovereign debt as responsibility for the payment would be pooled. Access to capital markets would be easier as the risk of the whole would be lower than that of each party, which would make it possible to obtain more liquidity than separately. In addition, it would allow it to compete with greater guarantees against third-party broadcasts, such as the United States.
The European Union’s Franco-German locomotive has been re-launched. French President Emmanuel Macron and German Chancellor Angela Merkel backtracked to overcome the EU’s s struggle over reconstruction following the coronavirus crisis. The chancellor changed her attitude after all, accepting joint indebtedness in the EU in principle.
The French president managed to get the 500 billion euros of reconstruction aid delivered in the form of grants, not as loans to those of the very indebted countries of the south, as Germany and the northern countries actually wanted. In return, Macron had to accept that the reconstruction fund does not amount to 1.5 trillion euros, but only to one-third of that amount.
It is still only a proposal put forward by the important Franco-German tandem. But it has already been arranged with the European Commission, and it is now putting the EU under pressure under pressure.
In this constellation, they will receive less money and will have to pay more to support countries such as Italy, Spain and also France, hardly affected by the coronavirus pandemic.
Solidarity will now also be required from countries such as Poland, Hungary, Bulgaria and Romania, which until now had always been net recipients of EU funds. For this reason, Merkel contacted the eastern countries, to explain his concept.
In Germany, Merkel will still have to wage a tough battle. Because in conservative parties (CDU and CSU) there is probably resistance against the idea of subsidies, which involves additional million-dollar expenses. The financing should be achieved through joint debts to be incurred by the European Commission. Countries would have to pay them together in 20 years, in proportion to their share in the EU’s long-term budgetary framework. The measure would have a binding effect on governments and parliaments even in 2040, restricting their fiscal margins of action.
This new concept could simply be called «Eurobonds», or «Coronabonos» light. These are joint borrowings of limited liability. But this could contravene Article 311 of the European Treaties, so many elegant legal tricks will be required for everything to fit. Italy and France can rejoice. They managed to impose themselves.
Next week the European Commission will present its comprehensive draft budget, of which the reconstruction fund is only part of it. EU member countries will need to agree quickly, so that the money urgently needed to mitigate the recession can flow until the end of the year, or even better earlier. The signs are green for this agreement, which should be an exception.