eurobonds-fiscal-union

AGAINST eurobonds

FOR eurobonds

1. MORAL HAZARD

Joint issuance of debt through eurobonds introduces a significant moral hazard. When the Maastricht treaty was signed, voters were promised that “financial assistance” for spendthrift economies was strictly prohibited. By agreeing to eurobonds, the EU would be rewarding bad behaviour and giving irresponsible governments access to even more cheap credit.

1. COMPLETING MONETARY UNION

The architects of the euro created a monetary union without the necessary fiscal side to support it. Now, the flaw has been exposed and things obviously cannot continue with “business as usual”. Either the eurozone will collapse, which would be catastrophic for the economies of Europe, or members will need to consolidate a full fiscal union.

2. NO POLITICAL BACKING

A properly functioning fiscal union would need more than just eurobonds. You would also need fiscal transfers from surplus countries to poorer countries; a single treasury to coordinate joint fiscal policy; harmonised taxation and more. Eurobonds on their own are not a panacea – and there is no political appetite on the part of electorates for the kind of radical federalism that would be required.

2. TOUGH RULES

There is no moral hazard associated with eurobonds, because they would only be introduced after the fiscal compact is in place. The compact institutes much tougher rules for member-states, including constitutionally defined debt-ceilings. This would help to avoid a repeat of the current situation, because governments would find it harder to abuse cheap credit.

3. ILLEGAL

Eurobonds are illegal – both according to the EU treaties and according to national law (including, importantly, the German federal constitution). Implementing them without treaty change would expose the EU to serious legal challenges.

3. ONE MORE STEP

This is how European integration has always worked; in gradual steps rather than all at once. Eurobonds, therefore, should not be seen as the completing part of the puzzle, but rather as one more important step towards the goal of deeper European integration.

4. TREATY CHANGE

If the EU is serious about eurobonds, then treaty change will be required to make it legal. This will require years of lengthy negotiation, including ratification by national parliaments and possibly referenda in several countries. The current crisis required a solution now, not several years down the road.

4. DIFFERENT BOND TYPES

True, some of the proposals for eurobonds might require treaty change, but the Commission argues (PDF) that certain types of eurobond can be introduced without the need to re-open the treaties.