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BackThe different concepts of Eurobonds - hence joint borrowing by states of the Eurozone - were associated with the hope of leaving the debt crisis behind and to meet the mighty financial markets as a unified Eurozone. An Expert Group of the Commission chaired by Gertrude Tumpel-Gugerell has now reached the sobering conclusion that the discussed concepts can hardly be implemented without lengthy treaty changes.
Eurobills and debt redemption fund
The group of experts discussed two concepts, so-called “Eurobills” and a debt redemption fund, which was in particular suggested in Germany by the “German Council of Economic Experts” (the so-called Five Wise Men).
Based on the idea of “Eurobills” only a small percentage of debt (e.g. up to 10 % of GDP of the countries involved) shall be issued as joint debt securities and the bonds shall have a relatively short term of only one or two years.
The concept of the debt redemption fund determines that all Member States of the Eurozone transfer that part of their debt, which exceeds the limit of 60 % of GDP at a certain cut-off date, to the European debt redemption fund. The debt redemption fund would refinance the assumed debts with joint bonds. In return, the individual Member States would commit themselves to redeem their outsourced debts over a period of 25 years, which would mean that the pressure on the states to reduce their deficits would be at different levels.
Both concepts may be furnished with different conditions to meet the feared problem of “moral hazard”, i.e. the danger that individual states exploit the preferential conditions to borrow and eventually become excessively indebted at the expense of other states.
Democratic problems or lame excuse?
The selection and composition of the group of experts in itself was problematic, as the group clearly contradicts the criteria of balance, set out by the Commission itself, according to which economic interests may not be over-represented, and a counterbalance made up of trade unions, science and civil society has to be in place. However, in reality, 4 of 10 members of the expert group represent the interests of the financial industry, whilst trade unions and civil society are not present at all. The other members are former national bankers or business friendly scientists. A public invitation to tender has also not taken place.
Even though the group of experts recognises in its final report the possible advantages of Eurobills and the debt redemption fund, in the end it buries the idea again. On the one hand, it points out that the effects of the new economic architecture (Six Pack, fiscal pact, banking union) have to be awaited and once again refers to the danger of the “moral hazard”. However, particular remarkable is its main argument against a joint European debt management. The group of experts argues that the two discussed concepts may not be implemented without changing the EU Treaties. Alternatively, it would be possible to create an intergovernmental agreement outside EU law. However, this is rejected by the group of experts because of democratic concerns. Even though these concerns cannot be simply dismissed, governments were not deterred to initiate the fiscal pact, the European Stability Mechanism ESM or recently the planned fund for financing failed banks as intergovernmental agreements. However, quite obviously these democratic concerns currently only apply if the failed austerity logic is to be cemented or to prevent Europe from having more competencies.
The group of experts discussed two concepts, so-called “Eurobills” and a debt redemption fund, which was in particular suggested in Germany by the “German Council of Economic Experts” (the so-called Five Wise Men).
Based on the idea of “Eurobills” only a small percentage of debt (e.g. up to 10 % of GDP of the countries involved) shall be issued as joint debt securities and the bonds shall have a relatively short term of only one or two years.
The concept of the debt redemption fund determines that all Member States of the Eurozone transfer that part of their debt, which exceeds the limit of 60 % of GDP at a certain cut-off date, to the European debt redemption fund. The debt redemption fund would refinance the assumed debts with joint bonds. In return, the individual Member States would commit themselves to redeem their outsourced debts over a period of 25 years, which would mean that the pressure on the states to reduce their deficits would be at different levels.
Both concepts may be furnished with different conditions to meet the feared problem of “moral hazard”, i.e. the danger that individual states exploit the preferential conditions to borrow and eventually become excessively indebted at the expense of other states.
Democratic problems or lame excuse?
The selection and composition of the group of experts in itself was problematic, as the group clearly contradicts the criteria of balance, set out by the Commission itself, according to which economic interests may not be over-represented, and a counterbalance made up of trade unions, science and civil society has to be in place. However, in reality, 4 of 10 members of the expert group represent the interests of the financial industry, whilst trade unions and civil society are not present at all. The other members are former national bankers or business friendly scientists. A public invitation to tender has also not taken place.
Even though the group of experts recognises in its final report the possible advantages of Eurobills and the debt redemption fund, in the end it buries the idea again. On the one hand, it points out that the effects of the new economic architecture (Six Pack, fiscal pact, banking union) have to be awaited and once again refers to the danger of the “moral hazard”. However, particular remarkable is its main argument against a joint European debt management. The group of experts argues that the two discussed concepts may not be implemented without changing the EU Treaties. Alternatively, it would be possible to create an intergovernmental agreement outside EU law. However, this is rejected by the group of experts because of democratic concerns. Even though these concerns cannot be simply dismissed, governments were not deterred to initiate the fiscal pact, the European Stability Mechanism ESM or recently the planned fund for financing failed banks as intergovernmental agreements. However, quite obviously these democratic concerns currently only apply if the failed austerity logic is to be cemented or to prevent Europe from having more competencies.