Commission buys time on eurobond proposal


The European Commission will issue a 'green paper' on Wednesday (23 November) examining the scope for the introduction of eurobonds as a way to tackle the eurozone debt crisis. But the public consultation it will launch is unlikely to result in concrete proposals until next year, an EU official said.

Speaking in Brussels on Monday, Commission President José Manuel Barroso aimed at soothing German fears about issuing commonly backed debt, warning that eurobonds could only be introduced after eurozone countries agree to more "discipline and convergence".

The eurobond paper to be issued on Wednesday will therefore come up alongside a package to further strengthen fiscal surveillance on countries using the common currency.

"We believe that when there are appropriate levels of integration, convergence and discipline, it makes sense to have a kind of stability bond in Europe”.

"We need more discipline in the euro area because we are in the situation today [caused by] lack of discipline, because governments have not respected their commitments to the Stability and Growth Pact,” Barroso stressed.

The Commission plans are however likely to meet with fierce resistance in Germany. “We don’t want any interest rate socialism in Europe,” said Christian Lindner, from the liberal Free Democratic Party of Germany (FDP), one of Chancellor Angela Merkel's coalition partners.

According to EU sources, the three key options the Commission will present on Wednesday, include:

  • Introducing a new eurobond to completely replace existing national bonds, an idea that would require extensive changes to the EU treaties, thus delaying implementation;
  • A scheme whereby eurozone member states would offer a limited guarantee for new bonds, but maintain national bonds at the same time, requiring no treaty change, but also providing no pooled risk; and
  • A compromise proposal, whereby common eurobonds would be issued throughout the eurozone, but states incurring high debt levels would be forced to revert to national bonds. This measure would require treaty changes.

Germany wary on common bonds

An EU official told EURACTIV that the European Central Bank’s involvement as a potential guarantor of such bonds does not appear in any form in the proposals.

Germany is strongly against stability bonds, fearing they would enable weaker eurozone members to shelter in the strength of Germany’s premium credit rating.

The green paper will also include proposals to tighten fiscal control over the eurozone, such as a requirement for EU approval of all 17 eurozone budgets and granting Brussels the power to administer recalcitrant states.

It is hoped that the strength of such fiscal control measures will convince Germany that the proposals will meet concerns that eurobonds would be a recipe for irresponsible spending, the source said.

The green paper will lead to a consultation period during which the opinions of all stakeholders will be sought, the source added, saying that a firm proposal would almost certainly not appear before 2012.

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 to many. But not Germany, which pays low yields on its bonds and fears being forced to pay 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 German opposition.

  • 23 Nov.: Commission to unveil green paper on Eurobonds and new measures to strengthen fiscal discipline in the euro zone.

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