EU bonds spark debate as recession hits

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As Europe mulls measures to tackle the worst economic crisis to hit the continent since 1929, the idea of issuing EU bonds to fund key projects and ultimately create new jobs is gathering momentum and spurring debate.

Jean-Claude Juncker, president of the 15-member Eurogroup of eurozone finance ministers, explicitly supported EU securities: "I suggest that the European Commission emits EU bonds and invests the revenue purposefully, for example into roads, rails and energy. Europe now needs to act jointly in order to tackle the economic crisis as resolutely as it is tackling the financial crisis," he said in a joint interview with German Foreign Affairs Minister Frank-Walter Steinmeier, published by German paper 'Bild'.

EU bonds represent an instrument to raise money easily during a period in which credit is tightening. They offer the advantage of relying on the free decisions of investors and savers rather than impositions on taxpayers. Bonds would therefore radically change the way the EU projects are funded.

On the other hand, securities must be backed by capital, which in the case of EU bonds would mean the Community budget itself. Member states fear this could increase their contributionse to the common pot. The most financially virtuous countries, such as Germany and France, generally oppose EU bonds over concerns that they would weaken countries with previously high public debt, such as the Mediterranean eurozone countries.

The Commission maintains a lukewarm stance on EU bonds. Unless stronger political backing is given to the idea, it appears unlikely that the EU executive will propose such measures in its anti-recession package, to be presented on 26 November.

The conservative EPP-ED Group, the largest political group in the European Parliament, supports the idea. Joseph Daul, leader of the EEP-ED group, said: "We must simplify the internal market, invest in research, strongly support our SMEs and help those families in difficulty. And we must do this without putting any strain on public finances – for example by considering EU bonds as a source of funding," he said during a Parliament plenary session in Strasbourg yesterday (18 November).

The socialists clearly back the idea too: "The European Union has a key role to play in raising and channelling funds. There should be no taboo. Member states should discuss the possibility of the EU issuing Eurobonds to invest in European projects," Pervenche Berès, chairwoman of the Parliament's economic and monetary affairs committee, said at last week's launch of the Socialists' plan to tackle the recession.

The Parliament is currently collecting signatures to present a 2009 own-initiative resolution for the use of EU bonds to fund EU key projects. This follows a declaration approved in September by the leaders of the Italian conservative and socialist MEPs, namely Parliament Vice President Mario Mauro and Gianni Pittella (EURACTIV 25/09/08).

The idea of using EU bonds 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. He aimed to use EU bonds to finance the European budget. Another former Commission president, Romano Prodi, backed the idea too. But most member states were opposed the idea, fearing it would ultimately increase their expenditure on the Community budget. 

The principle of borrowing money - backed by the EU budget - to fund projects or provide aid has already been applied by the European institutions on several occasions, usually only involving small amounts of money. For instance, a 'New Community Instrument' was developed between late 70s and early 80s to promote investment and to help regions affected by earthquakes in Italy and Greece. 

Currently, the bloc is providing financial support to crisis-hit Hungary by issuing EU bonds, using a facility that has not been applied since the establishment of the European Union. The ceiling for this instrument has been raised from €12 to €25 billion (EURACTIV 30/10/08).

  • 26 Nov. 2008: The European Commission is set to present its detailed anti-recession plan.

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