Europe cannot restart its economy until the threat of infection is reduced. Supply chains and trade in goods and services criss-cross back and forth over the EU’s internal borders and shutting those borders is causing chaos. The faster and more effectively all European countries implement social distancing measures (alongside testing, contact tracing, and disease surveillance), the sooner we can get everyone’s economy up and running again.
However, people need money to wait out the disease. If they don’t have money, then their choice is – bluntly – to either ignore social distancing measures and go back to work or to starve. According to that remorseless logic, it makes sense for economically-stronger EU Member States to support their neighbours financially. Wealthier EU countries cannot restart their economies as long as borders are shut and infection persists elsewhere in Europe.
What would that financial support look like? There are various options available. Italian Prime Minister Giuseppe Conte has called for “coronavirus bonds” to be issued, effectively pooling debt within the European Union. The idea to create common Eurozone debt was also floated during the 2011 sovereign debt crisis, though the “corona bonds” would theoretically be one-off instruments to fight the immediate economic impact of the COVID-19 pandemic.
However, Germany and the Netherlands have been leading opposition to joint EU bonds, fearing a significant moral hazard if they are introduced. They no doubt worry that such bonds would become a permanent feature of the Eurozone (as Jean Monnet, “father of Europe”, wrote in his memoirs: “Europe will be forged in crises, and will be the sum of the solutions adopted for those crises”).
Should richer EU member states bail out poorer ones? You can quibble over the words “bail out” but, however you phrase it, that’s the essential question. As Commission President Ursula von der Leyen put it: “The word corona bond is really just a slogan… Behind it, though, there is the larger question of guarantees. And there, the concerns in Germany, but also in other countries, are justified.”
That same tension was on display when Christine Lagarde, President of the European Central Bank, clumsily asserted that the ECB was “not here to close spreads”. Her policy was swiftly overturned when the ECB announced an additional €750 billion of Quantitative Easing. Could northern reticence to the idea of corona bonds similarly be overturned?
Should richer EU member states bail out poorer ones? Is it time for ‘corona bonds’? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts!