Since the beginning of the corona crisis, the European Union is seeking a common and coordinated response. In light of national egoisms and solo actions, a functioning internal market, relief supplies, which are distributed among Member States, even patients, who are flown out of France and Italy, give a merely superficial impression of a solidary community. But what could be a joint European response to the looming recession, one that does not repeat the mistakes of the Euro crisis? The debate on the issue is deeply political; after all, what is required now is a serious commitment to European solidarity and a restructuring to achieve a socially fair and sustainable Europe, which includes a reform of the Economic and Monetary Union, the strengthening of European social policy, the Green Deal and the realignment of numerous European policy areas, for example EU trade policy.

Different starting positions in the Member States

Corona bonds, hence a joint debt liability of all Euro States, which, if possible, should also include non-Euro countries, were called for among others by Italy, France and Spain in a letter to Council President Charles Michel. All three countries have a high number of cases and fatalities. However, compared to Germany, the volumes of national aid packages in proportion to the Gross Domestic Product are at a low level. Added to this are the revenue losses due to the severe recession, which have to be financed via the capital markets. Even though interest rates in all countries are currently still far from the dangerously high levels seen in the euro crisis ten years ago, the differences are relevant: While Germany and the Netherlands are even earning through additional debt, Italy and Greece have to pay well over 1%.

European rescue package or Corona bonds?

Now the idea of joint bonds has become a topical issue again. In fact, they have already existed: In 1975, so-called Community Bonds were issued within the context of the oil crisis. During the financial crisis 2008/09, Eurobonds were demanded but did not materialize due to Germany’s vehement resistance. Instead, the ESM, the European Stability Mechanism – was introduced, accompanied by severe austerity measures, providing a “shelter” for individual Member States, in particular Greece. However, the Italian Minister President Giuseppe Conte declared on German television that the situation is different now: one had to deal with an “epochal challenge”, which is not limited to one Member State that got its numbers wrong or mismanaged its economy. Instead, all Member States are facing an economic collapse. Hence, a joint solidary solution is needed, that would benefit everybody.

Corona bonds – limited in terms of time and quantity

Corona bonds are bonds, which are jointly borne by all States. In contrast to Eurobonds, Corona bonds would be a one-off specific solution and not a long-term and unlimited joint liability. For example, the volume of Corona bonds could be limited to 1,000 billion Euro (ca. 7 % of EU GDP) and distributed equally, in relation to the national economic output. This way, countries that are hit particularly hard by the crisis could especially benefit from overall better conditions. The proposal by the EU Commission to introduce a new EU short-time work scheme (SURE) is already a first step in this direction. According to Ursula von der Leyen’s statement on 1 April, the reason behind this measure was that one had “learned from the crisis 2008/09”. The new instrument shall be furnished with 100 billion Euro, to be raised through common bonds backed by guarantees from all Member States.

As for the ESM, the opportunity to introduce joint bonds in the course of the Euro crisis was missed. In fact, countries were forced to adopt austerity measures, to which public infrastructure, healthcare and social services fell victim. A variant of the ESM solution with tailored credit limits is currently under discussion. That way, affected countries could benefit from ESM loans of over 100 billion Euro in the fight against the economic consequences of the Coronavirus, without loans being attached to austerity measures.

Do short-time work measures and a low volume help to overcome the deadlock?

So far, Austria, the Netherlands, Finland and Germany are the strongest opponents of Corona bonds, although even conservative economic experts are making positive arguments for a joint debt liability. At the beginning of the debate, ETUC too came out in favour of Corona bonds, criticizing the failure of the Euro summit as a missed chance to find a joint solution. Even before the introduction of the new  short-time work scheme, the European Union made an attempt to defuse the deadlocked discussion by presenting a revised proposal for the Multiannual Financial Framework 2021-2027 and the proposal to swiftly implement the European unemployment reinsurance scheme. The ball is now especially in the corner of the Euro Group, which has been asked to submit a plan to cushion the economic consequences within the next two weeks.

Further information:

Press release by the European Commission from 02 April 2020

AK EUROPA: Position paper on the Report “Completing Europe’s Economic and Monetary Union”