THE NEW EU THROUGH CORONABOND
Coronavirus continues to plague the old continent even though good news from the World Health Organization has come up that there are encouraging signs in the fight against coronavirus in Europe. In the meantime, an economic crisis is moving from a health crisis. It is here that European leaders are looking for solutions to revive the economy of the EU member states.
The proposal of the President of the European Central Bank is based on an old theme: Eurobonds. Eurobond is a financial instrument (which does not exist) issued not by a state, but by the countries of the European Union as a whole. In practice, debt is shared between several countries: and it is this element that has always slowed down the most ‘virtuous’ countries. That is, Germany and its allies, unenthusiastic (euphemism) to issue new debt in common with the most indebted countries and with the least in order (many of them from Southern Europe: Greece, Italy, and more). Having debts in common would presuppose having common fiscal policies and then repaying them, those debts: a union that has never been realized.
The idea has been welcomed by many states, not only those from southern Europe. “We should seriously think about it, alongside the use of the tools of the European Stability Mechanism (ESM)”, Lagarde would have said stressing that the issue would be strictly one-off. The president of the ECB would not have entered the details of the proposal, indicating neither the amount of the eventual issue nor the legal procedures.
The ECB did not comment on the indiscretion. Financial ministers, on the other hand, expressed broad support for the possibility that the State-saving Fund would use precautionary credit lines, worth about 2% of each country’s GDP, to member states requesting such a security buffer. Recall that the ESM credit line would allow governments to continue financing on low-interest markets and would pave the way for the unlimited purchase of ECB bonds under the Outright Monetary Transactions (OMT) program, if necessary.