With most people confined at home due to the coronavirus outbreak, all the key EU economies have been brought to a standstill. There is an increased demand for Europe to provide new approaches to tackling the economic impact of the coronavirus in the region. Hence, the proposition of corona bonds.
A joint letter has been released, signed by the heads of state of Italy, France, Belgium, Greece, Portugal, Spain, Ireland, Slovenia and Luxembourg. It urges their EU counterparts to issue so-called corona bonds for the benefits of all Member States. Corona bonds are to be new common debt instruments that would combine securities from the different EU countries. It is to be issued by a European institution to raise funds on the market on the same basis for the mutual gain of all countries.
Interestingly, It’s not the first time that the subject of issuing joint debt has been raised in the EU. During the sovereign debt crisis of 2011, European countries initially considered the idea of a Eurobond. However, some nations believed joining their debt with other countries was a risky affair. Especially, since some countries were considered to have a higher risk of default.
These are the same reservations that are limiting the fruition of the “Corona Bond” today. Conservative policymakers in countries like Germany, the Netherlands and Austria are very hesitant about issuing debt together with highly leveraged nations, such as Italy, Greece and Portugal.
In light of this, the nine heads of state are appealing to them to recognize the severity of the economic situation of Europe. They also stressed the necessity to work towards buttressing our economies today. Still, the unyielding certain European capitals do not see the need to go as far as issuing common debt for now.
Their confidence is enforced by the surprise $820 billion coronavirus package the European Central Bank, chaired by Christine Lagarde, bestowed on the markets. The decision enhanced every country’s lending capacities and stands to help them deal with the economic impact of the virus.
Not only did it calm financial markets, but it also lowered the pressure on European countries to present new financial instruments to deal with the crisis. Additionally, member states have also announced individual fiscal measures to support their economies.
Irrespective, the joint letter insists that the case for such a common instrument is strong. Mainly because, they are all facing a symmetric external shock, for which no country bears responsibility, but whose negative consequences are endured by all. This suggests that their reservations are unnecessary as the current crisis is different from the global and sovereign debt crisis, where the region had been affected disproportionately. Still, officials say that a Eurobond or corona bond would “take ages to negotiate.”
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