Commission President José Manuel Barroso announced yesterday (16 November) in the European Parliament that his office would table next Wednesday a proposal on ‘stability bonds’, which are otherwise known as eurobonds.
In what can be seen as a challenge to Germany which opposes introducing eurobonds to tackle the eurozone sovereign debt crisis, Barroso said he believes that euro stability bonds will be seen as ‘natural’ when the Union reaches its goal of reinforced governance, discipline and convergence in the euro area.
Barroso made the statement as part of a 'Debate on economic governance' with MEPs in Stasbourg, in the presence of European Council President Herman Van Rompuy and Eurogroup President Jean-Claude Juncker.
“The continued turbulent events in the sovereign bond markets were a sign that our challenges are of a greater magnitude,” Barroso said. He added that the problems the eurozone would face in 2012 would be "even more systemic and urgent".
"We should continue to deal with them robustly and not be diverted from the direction we have set ourselves," he pleaded.
Barroso said the Commission would present and assess the options for the joint issuance of bonds in the euro area, as "a concrete demonstration of the principles of responsibility and solidarity".
However, Germany is strongly opposed to issuing eurobonds, saying it could substantially raise the country's liabilities in the debt crisis. However, a growing field of investors and economists say it would be the best – and perhaps only – way of solving the debt crisis.
Yesterday, German Deputy Finance Minister Joerg Asmussen said that it would be wrong to introduce eurozone bonds as a "singular, isolated instrument" as a quick fix for the currency union's widening debt crisis.
Asked by EURACTIV to explain if there was a difference between 'stability bonds', an expression launched by Barroso in his 'State of the Union' speech in September, and the more popular expression of eurobonds, Commission spokesperson Olivier Bailly said journalists were free to call them as they like.
He explained, however, that by using the term stability bonds, the Commission wanted to convey the message that the bonds were not only a means to mutualise debt, but to foster stability.
Guy Verhofstadt, leader of the liberal ALDE group and certainly the most prominent promoter of eurobonds, introduced a new term, speaking of 'eurosecurities'. He added to this what can be seen as a middle way, to be put in place according to a blueprint from German economists.
"We need to look into the proposal made by the five wise economists from the German Council of Economic Experts. In their opinion, a key element to end the crisis is the establishment of what could be called a European collective redemption fund. This would mutualise the debt in the eurozone above 60%, combined with a bold debt reduction scheme for those countries, which are not on life support from the [European bailout fund] EFSF," Verhofstadt said.
Only a real economic government combined with a form of eurobonds can stop the eurozone crisis, he argued.
Verhofstadt also said that much could be done inside the existing EU treaties, but changes were necessary and a convention to launch a new EU treaty change was needed.
The issue of a need of a treaty change is widely expected to be discussed at the 9 December EU summit.
The statements of the representatives of EU institutions came under fire from smaller political groups. Leaders must stop talking and put plans to save the euro into action, Conservative MEP Kay Swinburne told the European Parliament.
"We do not need any more grand plans or statements - the time for delivering existing plans is here. […]Unpleasant and unpopular actions are required to ensure a competitive EU for the next decade and beyond. Actions not words are now needed. Growth, not additional regulation, has got to be the prime focus," Swinburne said.
GUE/NGL President Lothar Bisky said markets remained unaffected by the decisions of the last EU summit and warned that speculators had "the next eurozone country in their sights". On the proposals announced by President Barroso to reinforce economic policy coordination, he asked: "do you have the courage and ability to stand up to the financial sector and prevent future waves of speculation? […] Citizens do not see themselves as responsible for the crisis, and they are not. They demand fairness, including fair taxation - hence the mass protests against austerity, hence the political instability in the countries worst hit, where many governments have been swept away. If austerity is further intensified the protests will continue to grow - where does this lead us?" he asked
Nigel Farage, leader of UKIP, the UK Independence Party, said the EU leaders had bored the audience with "the dullest most technocratic speeches" he ever heard.
"We are now living in a German dominated Europe...something the European project was actually supposed to stop. Something that those who went before us actually paid a heavy price in blood to prevent. I don't want to live in a German dominated Europe and nor do the citizens of Europe," he said.
The idea of using eurobonds was first launched by former European Commission President Jacques Delors through a 1993 plan for growth, competitiveness and employment: the predecessor of the Lisbon Agenda and 2020 Strategy.
He aimed to use eurobonds to finance the European budget. Another former Commission president, Romano Prodi, backed the idea too. But no agreement has ever been found among member states.
The idea resurfaced as the economic crisis started hitting Europe in 2008. With many member states forced to pay unsustainable yields to refinance their public debt, the concept of low-yield Eurobonds appealed many. But not Germany, which pays low yields on its Bund and fears being forced of paying more to issue a Eurozone security.
Both former EU Economic Commissioner Joaquin Almunia and his successor Olli Rehn have previously supported the idea in principle, but in the past concluded that it was not feasible due to Germany's opposition.