The Eurobond dilemma

An agreement between European Union governments and a decision to issue joint Eurobonds, or “corona bonds” as they have been dubbed by the press, are not as straightforward as journalists, pundits and governments campaigning in their favor would have it.

Such a move requires careful consideration and organization, as well as guarantees that the liquidity from issuing Eurobonds will be used to cover genuine financial needs.

In other words, it will also require control. The need for control will be greater as issuing eurobonds would allow a group of eurozone countries to deal with the crisis by borrowing at lower interest rates while their wealthier counterparts will be shouldering the cost.

Meanwhile, we should not disregard the fact that the latter states will have to convince their voters as well as their parliaments of the need for such measures.

It is obvious that the final say rests with the German government. It is hard to imagine that if Berlin deems that issuing a corona bond will in the short or medium term serve the interests of Germany and those of the European Union, now-reluctant states such as the Netherlands, Austria or Finland would not choose to follow suit. And despite the refusal of European Commission chief Ursula von der Leyen to adopt the request of nine countries (Belgium, France, Greece, Italy, Ireland, Luxembourg, Portugal, Slovenia and Spain) regarding the eurobond, it is positive that the issue is being debated in Germany. In fact, many of the country’s economists have supported the idea.

Seen from a moral perspective, Berlin should keep in mind that postwar German prosperity was largely based on the 1953 debt relief treaty between the Federal Republic of Germany and creditor nations-winners of the Second World War. However, given the fact that states have no feelings, reason dictates that it makes no sense for half of the euro area to be left in economic tatters in the wake of the coronavirus pandemic while a healthy Germany stands on its feet. Such a predicament would mean that given that Germany’s EU partners absorb most of its exports, the country would have no one to sell its goods to. 

That said, one hopes that there will be a Union in the wake of the crisis, as the pandemic seems to be seriously testing the cohesion of the bloc.