In response to the economic consequences of the new coronavirus pandemic, the European Union, the Eurogroup and the Member States have presented several proposals (European Stability Mechanism (ESM); European Investment Bank Plan, SURE, Marshall Plan, Eurobonds or Coronabonds). One of the controversial options is the issuing of Eurobonds or “coronabonds”.
Laurent Baechler, Arnaud Leconte and Jean-Claude Vérez, all three economists and Directors of Master programmes at CIFE, examine this option on the table for discussion among EU Heads of State and Government.
What is a eurobond or a coronabond (or recovery bond) and what do we know about the principle of debt sharing?
A eurobond is a bond issued by the European Central Bank. By offering bonds, debt securities that public or private investors (such as insurance companies, banks or investment funds) can subscribe to, the ECB enables European countries in the euro zone to finance their deficits. These securities are denominated in euro. Instead of the national guarantee that characterises a national bond, Eurobonds benefit from the European guarantee. They are bonds issued jointly by Euro zone countries on the international markets.
A coronabond would have the same characteristics and would aim to finance expenditure due to the macroeconomic consequences of the coronavirus. It should be pointed out that the bond would be financing this expenditure alone and not national public expenditure of any other nature.
Debt sharing consists of opting for joint financing of public debts. It is not a question of one Euro zone country paying off the debt contracted by another country. Only the bankruptcy of a member country of the zone would force the other countries to take the place of this default, and this could happen without having shared the debts.
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