MEP in further push for eurobonds
By Sarah Collins | Tuesday 19 June 2012
French MEP Sylvie Goulard (ALDE) has stepped up pressure on the European Commission to come up with a plan for the introduction of eurobonds, despite continued resistance to the idea in Germany, the Netherlands and several other EU countries. In an own-initiative report presented to Parliament’s Committee on Economic Affairs (ECON), on 18 June, she said that the immediate pooling of certain debts was essential to curb a market rout that is driving some countries into insolvency. “Eurobonds are neither a panacea nor an idea to be totally excluded,” she said. “What is clear is that we need solutions today for those countries which are undergoing extreme structural changes.”
In her report on the ‘Feasibility of introducing stability bonds’, Goulard calls for a four-step plan for the introduction of eurobonds, starting with a temporary debt redemption fund for stressed states and the issuing of short-term euro “bills” of up to a year in length. Further down the line, she says, eurobonds should be used to finance a portion of member states’ national debt, with the possibility of “genuine federal bonds” and a treaty change to be examined by a European convention. Participation in any of the schemes would be dependent on maintaining debt and deficit levels within EU limits.
The idea of eurobonds has regained traction recently, buoyed by the support of Italian Premier Mario Monti (he and Goulard wrote a joint editorial last July calling for eurobonds as a solution to the crisis). Luxembourg, Belgium, Ireland, and Spain have also expressed support for the idea, but Germany has insisted that there be no mutualisation of debt before there is a full fiscal and political union in place in Europe. On 23 November last year, the Commission issued a green paper on ‘stability bonds’, setting out three options for the mutualisation of eurozone debt - ranging from countries’ part guaranteeing each others’ debt to fully fledged shared liability (joint and several guarantees) - but expressed no preference for any of the options.
European Commission President José Manuel Barroso said at the G20 summit in Los Cabos, Mexico, on 18 June, that eurobonds would not form part of the immediate solution to the crisis. “Some form of mutualisation of debt can be a contribution for further stability,” he said. “The so-called eurobonds are not and cannot be seen as a quick response now to problems of growth [...] but in the wider framework of banking union or financial union or other levels of financial integration, they can become part of the architecture.”
German officials have said that debt mutualisation would mean a change in the German constitution and the EU treaties, but European Council President Herman Van Rompuy says the legal advice “depends on whom you are asking”. However, he said the issue would not be decided quickly. “There is a broad understanding already now [...] that whatever form of mutualisation of public debt, this is not for the short term”.
Goulard’s four-point plan
A temporary debt redemption fund, akin to the idea put forward by the German Council of Economic Experts, who advise Chancellor Angela Merkel. Over-indebted economies would pool their excess debt (the portion above 60% of GDP, or around 2.3 trillion euro) in a common fund and the debt would be refinanced by issuing bonds. It would expire after 25 years.
Euro bills, similar to US treasury bills, issued by an EU agency and used to help stressed countries stave off liquidity shortages. Maturities would not exceed a year and would be limited to financing less than 10% of the GDP of participating countries (around 900 billion euro). The system could be dissolved by national parliaments.
Blue-red bonds along the lines of the Bruegel proposal could be issued further down the line without requiring a treaty change, Goulard says. Member states would pool their debt below a 60% of GDP threshold and refinancing it under joint and several liabilities.
In the longer term, the treaty should be changed to allow the refinancing of all eurozone debt under joint and several liability.