Daniel Halliday
Jun 3 · Last update 10 days ago.

Should the EU issue 'corona bonds'?

The question of collectively issuing joint sovereign bonds on behalf of the Eurozone bloc, in order to help European countries recover economically from the COVID-19 pandemic, has been controversial in the European Union. This type of debt investment, formerly called a Eurobond, has been discussed and dismissed before as a possible measure to recover from the 2009–2012 European sovereign debt crisis, but the renamed ‘corona bonds’ have proved to be equally as divisive. Eurozone countries don’t have the normal fiscal possibilities, open to an economy that issues its own currency, to help them to ride out an economic crises, so how will the EU go about recovering from a post-coronavirus depression? Who will pay for the pandemic in Europe? Who is right in the corona bond controversy? Is this causing a European solidarity crisis? How should the EU respond to the COVID-19 economic crisis? theguardian.com/world/2020/mar/26/eu-leaders-clash-over-economic-response-to-coronavirus-crisis
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No, moral hazard
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Yes, modern monetary theory and the future of the EU
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No, moral hazard

The question of issuing corona bonds to ease European economic recovery is essentially the rehashing of an old unpopular idea. Eurobonds were first raised by the Barroso European Commission in 2011 as a solution to the 2009–2012 European sovereign debt crisis but were seen as too controversial as they create a free rider problem, as it would benefit countries that are not fiscally stable enough to balance their deficits and keep their countries finances in order. Richer European nations such as Germany, the Netherlands and Austria have long fought against such policies, arguing that such bonds schemes carry a moral hazard, in that they would create a negative dynamic in which countries are incentivised to conduct bad fiscal behaviour. Although this proposal has been renamed it would suffer the same failings a eurobonds, the more stable European nations tend to be of the opinion that states should absorb this on their own and can issue their own government bonds.

cnbc.com/2020/04/08/corona-bonds-reasons-why-germany-and-the-netherlands-oppose-the-idea.html en.wikipedia.org/wiki/Eurobond_(eurozone)#Counter_proposals bloomberg.com/news/articles/2020-03-26/are-coronabonds-the-solution-to-europe-s-debt-woes-quicktake euronews.com/2020/03/26/what-are-corona-bonds-and-how-can-they-help-revive-the-eu-s-economy

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Daniel Halliday
Jun 29
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Yes, modern monetary theory and the future of the EU

The human and economic toll of the COVID-19 pandemic have been most extreme in Italy and Spain, so it is no surprise these two states are the main voices for corona bonds. Economists Jakob von Weizsäcker and Jacques Delpla initially proposed eurobonds in 2010, arguing that jointly issued bonds, by reducing the borrowing cost for all states, could prove an incentive-driven and durable method out of debt crises, and ultimately help strengthen the Euro as a reserve currency. Many economists have also advocated for modern monetary theory (MMT) based policies as the most robust approach to an economic depression, and arguably corona bonds fit this way of thinking.

MMT encourages the creating of new money through central bank monetary policy and government deficit spending, to maintain high levels of employment and balancing subsequent inflation with taxation. Furthermore looking back at the history of the EU it is clearly a measure that has worked in the past with more than a dozen community bond policies being issued to private markets by the European Commission since the 1970s. A misstep at this next stage in European financial decision making is widely considered to threaten the very existence of the European Union, for example Italy has openly threatened to “do it alone” if the EU fails to cooperate on this issue.

telegraph.co.uk/business/2020/03/29/eu-project-mortal-danger-italy-spain-abandoned voxeurop.eu/en/why-we-need-coronabonds-to-help-eu-states-face-the-crisis voxeu.org/article/long-run-view-coronabonds-debate bloomberg.com/news/videos/2020-03-02/can-coronavirus-response-open-the-door-to-modern-monetary-theory-video-k7akkat4 bruegel.org/2010/05/the-blue-bond-proposal

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Daniel Halliday
Jun 6
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DH edited this paragraph
The human and economic toll of the COVID-19 pandemic have been most extreme in Italy and Spain, so it is no surprise these two states are the main voices for corona bonds. Economists Jakob von Weizsäcker and Jacques Delpla initially proposed eurobonds in 2010, arguing that jointly issued bonds, by reducing the borrowing cost for all states, could prove an incentive-driven and durable method out of debt crises, and ultimately help strengthen the Euro as a reserve currency. Many economists have also advocated for modern monetary theory (MMT) based policies as the most robust approach to an economic depression, and arguably corona bonds fit this way of thinking.
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