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Jun 3 · Last update 3 mo. 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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Yes, modern monetary theory and the future of the EU
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The need for a fresh approach
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No, moral hazard
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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 in favour of 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. A sovereign currency itself is a unique public monopoly that can never run out, so there is no default risk, and unlike a household and a business a country with its own sovereign currency can operate its budget in a way that's different from normal small-scale budgeting. But it's not just the hardest hit governments that have taken this stance, many economists have placed themselves on the side of deficit spending as the best way to overcome this extraordinary prolonged economic depression the world now faces.

Furthermore looking back at the history of the EU such jointly issued bonds are 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. Such measures have a history of being successful in the EU, as well as a history of being fully repaid. 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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D H
Aug 31
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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 in favour of 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.

The need for a fresh approach

The European Union is in a unusual position both in terms of its economic situation and its history. The countries of the eurozone don’t have devaluation of their currency as a fiscal option to ride out economic difficulty; on the other hand they are currently more disjointed and lacking unity than any time before in the unions history, and with the approach of the post-COVID recession/depression a true test of the strength of this union is looming. Italians are now holding up the whole of European solidarity, with the prospects of an Italian exit form the EU being the most likely straw to break this weakened camel’s back.

To overcome this economic crisis and the impasse surrounding corona bonds other options are clearly needed, and this may have to take the form of bold policies that seem unimaginable by current standards. Some experts have recommended the division of the euro currency between the north and south to accommodate the very different economies of the eurozone, or some similar sort of division to allow devaluation or break the unhealthy balance currently struck between EU nations. As these nations have been dividd on the issue of the historical eurobond and the rebranded corona bond, there has also been disunity in the COVID-19 response, which tells us while this may not be the end of the EU the fractures are likely to grow moving forward.

independent.co.uk/voices/coronavirus-crisis-eu-italy-germany-greece-far-right-eurosceptics-a9440066.html youtube.com/watch?v=nPHg8KsTFw4 bbc.com/news/world-europe-52200719 europeaninstitute.org/index.php/ei-blog/155-european-affairs/ea-august-2012/1614-europes-north-south-dividea-stubborn-chasm

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D H
Jul 26
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DH edited this paragraph
To overcome this economic crisis and the impasse surrounding corona bonds other options are clearly needed, and this may have to take the form of bold policies that seem unimaginable by current standards. Some experts have recommended the division of the euro currency between the north and south to accommodate the very different economies of the eurozone, or some similar sort of division to allow devaluation or break the unhealthy balance currently struck between EU nations. As these nations have been dividd on the issue of the historical eurobond and the rebranded corona bond, there has also been disunity in the COVID-19 response, which tells us while this may not be the end of the EU the fractures are likely to grow moving forward.

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, with poorer countries benefitting off the back of their richer neighbours. As Eurobonds would benefit countries that are not fiscally stable enough to balance their deficits and keep their countries finances in order it was seen as setting a dangerous economic precedent within the EU, and the same applies to the rebranded 'corona bonds'.

Richer European nations such as Germany, the Netherlands and Austria have long fought against these 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. There is a vast difference in culture between these economically conservative northern nations and their southern counterparts, but this chase cannot be overcome with such a controversial and problematic policy.

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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Latest conversation
D H
Jul 26
Approved
DH edited this paragraph
Richer European nations such as Germany, the Netherlands and Austria have long fought against these 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. There is a vast difference in culture between these economically conservative northern nations and their southern counterparts, but this chase cannot be overcome with such a controversial and problematic policy.
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