The idea, also championed by Italy, was swept away by Chancellor Angela Merkel and other northern European countries at a European summit on Thursday, March 26.
Hello, Europe? A common response to the crisis? Not without conditions. German Chancellor Angela Merkel said no, Thursday, March 26, to the idea of issuing “corona bonds”, as proposed by nine European countries, including France. These states wanted to create bonds (a debt instrument) pooled in the euro zone, in order to have significant funds to withstand the economic shock in the face of the epidemic of coronavirus that is hitting the continent hard.
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Their aim is to encourage the resumption of growth, heavily penalized by confinement, with money guaranteed by a common European fund. What are these new version “euro bonds”? Who is in favor? Who is hostile to it? How can it work? Small inventory.
1What are “corona bonds”?
“Corona” obviously refers to the economic crisis linked to the coronavirus. As for “bonds” (nothing to do with the secret agent in the service of Her Majesty), it means in English “obligations”. “The 'corona bonds' are the equivalent of the 'euro bonds' which were mentioned in 2011 during the Greek debt crisis and never saw the light of day, explains to franceinfo Céline Antonin, economist at the OFCE and specialist in the euro zone. It is a question of pooling public debt at the level of the euro zone. “
“For now, each country issues its public debt on its side, explains the economist. A lower quality debt requires higher remuneration “, she notes. Clear : “It all depends on the country's ability to repay its public debt. And this capacity is stronger, for example, in Germany, which borrows at negative rates – like France – than in Italy“.
Italy would therefore have every interest in it. Because the country “saw its 10-year rate increase to 2.4% on March 17. If investors demand a 'premium' from Italy, it is because the peninsula (…) presents them as a risk According to the European Commission, its public debt exceeds 136%, the second highest ratio in Europe after Greece. “
2How would it work?
“The different European countries would contribute to a fund which could issue these bonds and guarantee them”, explains Céline Antonin again. What fund? Favorable to this idea, the Portuguese Carlos Costa pleads for “innovative solutions”, according to Reuters. “One option that merits further analysis is the possibility that the European Stability Mechanism issues 'coronabonds' and that the product is allocated to all the member countries which need it “, he writes.
These bonds, repayable over the long term via the budget of the European Union, could have very long maturities, of several decades, in order to spread out as much as possible the annual contributions of the member states, he recommends. They could finance both efforts to combat the epidemic and those aimed at limiting its economic impact.
3Who is claiming these shared obligations?
Essentially the south of Europe, more vulnerable to crises. But France is also one of the applicants. Nine European leaders, including Emmanuel Macron and the Italian Giuseppe Conte, called for the creation of these “corona bonds” in a letter addressed on Wednesday March 25 to the President of the European Council, Charles Michel. They consider that this joint loan is necessary in the face of the health crisis.
In a column addressed to Reuters, the Governor of the Bank of Portugal, Carlos Costa, outbids. “Failure of cooperation in this crisis would leave permanent scars on the European project”, he writes, believing that “Solutions must be found to prevent the emergency of the coronavirus from becoming a second sovereign debt crisis”.
Has this initiative found an echo far from the sunny capitals and already heavily indebted? Yes. As of Tuesday, the President of the European Central Bank (ECB), Christine Lagarde, asked by videoconference to the finance ministers of the euro zone to seriously consider an exceptional issue of mutualized sovereign bonds, to better arm themselves in the face of the crisis. And his speech, ensures a European official quoted anonymously by the Reuters agency, would have met “lots of support beyond Club Med“, according to the unlovable label attached by some financiers to the countries of southern Europe.
4Who is hostile to it?
Germany and the Netherlands, in particular, who welcomed Christine Lagarde's proposal before Berlin even officially replied no Thursday evening at a European summit. These countries had already expressed their opposition to the “euro bonds” in 2011, recalls Céline Antonin, by evoking the “dichotomy” Between “good students” from northern Europe who are on a budget and “the bad students”, deemed too spendthrift by the former.
We have said on the German side, but also on the part of other participants, that this was not the concept of all the member states.
The Chancellor reaffirmed Thursday evening her opposition to the idea of issuing these “corona bonds”, she which has always refused the principle of pooling debts in Europe. She reaffirmed her “preference for MES”, the European Stability Mechanism, which serves as an emergency fund in the event of a crisis in the euro zone. “We have with the MES a crisis instrument which opens up many possibilities and which does not call into question the basic principles of common action and of everyone's responsibility”, she said.
Clearly: to a large shared European loan, the Chancellor prefers this MES which can lay down strict conditions in exchange for its loans to countries in crisis, such as unpopular reforms or clear cuts in budgets. Or the armed wing of European “austerity” for its detractors.
Berlin, The Hague or Vienna – “roughly Germanic and northern countries” – look badly “this pooling of debts”, explains Céline Antonin. “And vscan understand each other. From 2010 to now, Berlin has grown from 80% to 60% public debt (percentage of public debt in relation to GDP) while in France, we have a public debt which today flirts with 100%. But it has been the same problem for ten years. We let Greece or Spain manage on their own in the face of high rates, without European solidarity at this level. “ And the economist says he is quite skeptical about a change of position: “The situation should really become dramatic for all countries. So far, even if the hour is critical, fiscal policy remains independent.”