Calls for ‘Eurobond’ resurface as crisis threatens EU finances

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With investors increasingly risk-averse due to the financial crisis, the idea of a European bond to finance large infrastructure projects of common European interest is coming back in Brussels circles and some national capitals.

A cross-party group of MEPs yesterday (25 September) called on the Commission to take this instrument into consideration as a potential additional source of funding for the EU. 

As the financial crisis hits and credit for key EU investments risks drying up, Italian MEPs from the socialist and conservative parties presented a joint document appealing for the use of Eurobonds to fund EU priority projects such as renewable energies, high-speed Internet infrastructure or transport networks.

Mario Mauro MEP (EPP-ED, Vice President of the Parliament) and Gianni Pittella, leader of the Italian socialist delegation, underlined that the Eurobonds would not be directly linked to national budgets. Above all, they argued that it would not rely on obligations to taxpayers but on savers’ voluntary investments. 

However, Brussels remains wary on the proposal. Economic commissioner Joaquin Almunia rejected similar suggestions from Italian Finance minister Giulio Tremonti a few months ago, citing lack of support among member states.

In a majority of EU capitals a Eurobond is indeed considered a potential new burden on national budgets. "Who will pay the debt back, if the EU budget is overstretched?" is a recurring question.

Interest from the Commission and the European Investment Bank (EIB)

But the idea found support however from Transport commissioner Antonio Tajani who is seeking fresh money to fund expensive cross-border transport infrastructure, the so-called TEN-T projects. 

Together with Philippe Maystadt, the President of the European Investment Bank (EIB), they created a joint working group “with the aim of exploring the possibility of new instruments for the financing of TEN-T projects”, reads a note published after the meeting.

According to the idea promoted by the Italian MEPs, the European Investment Bank (EIB) would manage the securities and the EU budget would guarantee them. The money raised would be spent in the first years of the financial perspectives and paid back with the EU budget in the final stages of the seven-year period. The plan does not foresee extra-charges for the community budget but, according to its promoters, would give more flexibility to make payments, allowing the EU to face emergencies.

MEPs are planning to reach an agreement in the Parliament to present a proposal to the Commission by the end of the year, aiming at introducing the Eurobond instrument during the review of the EU budget, scheduled before end 2009. 

report, to be voted in the Parliament’s Economic Committee, already suggests using Eurobonds to support European growth.

The idea of using Eurobonds to finance the European budget has been launched for the first time by the former President of the Commission Jacques Delors with his 1993 plan for growth, competitiveness and employment, the predecessor of the Lisbon Agenda.

But the majority of member states opposed the idea, fearing it would ultimately increase their expenditure to the community budget. 

The principle of borrowing money - with EU budget backing - to fund projects or provide aid has been applied by European institutions already in several cases, although the amounts involved have been small. For instance, a  ‘New Community Instrument’ has been used between late ‘70s and early ‘80s to promote investment and to help regions affected by earthquakes in Italy and Greece. 

Currently, the EU budget is funded by three main resources: a percentage of the Gross National Income (GNI) of each member states, a percentage of the VAT revenues raised by member states and the own resource consisting in the duties charged on imports of products coming from outside the internal market.

  • By end 2008: possible proposal from the Parliament to the Commission for a legislative action on Eurobonds
  • By end 2009: possible review of the EU budget regulatory framework

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