Parliament kick-starts frozen eurobond debate

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The European Parliament is set in the coming weeks to reinvigorate the ongoing debate on eurobonds, pushing for the common issuance of eurozone-backed state securities as a means to counter the ongoing public debt crisis.

Three committees in the European Parliament are at work to provide their opinion on a European Commission Green Paper exploring the feasibility of eurobonds – or stability bonds, as the EU executive prefers to call them.

The Green Paper, tabled in November 2011, explored three options for eurobonds, ranging from a complete substitution of national debt issuance to a mix between a national and a European system.

Although the Parliament deliberations in the coming months will remain theoretical at this stage (Green Papers a merely an invitation for debate), it will give a good indication of where the main political parties stand on the matter.

The first body to deliver its opinion will be the legal affairs committee, which is expected to publish its position by the end of April.

“Full substitution of national issuance by stability bonds would represent the most suitable response to the sovereign debt crisis, although it still lacks key prerequisites in terms of economic, financial and political integration,” said Raffaele Baldassarre, a Christian Democrat MEP from Italy who is in charge of drafting an opinion for the Parliament's legal affairs committee.

Despite supporting eurobonds in principle, the influential legal affairs committee is set to reject the boldest option, which would involve substituting national bonds for European ones, on the grounds that it would require treaty changes. On the other hand, it will propose to go ahead with eurobonds using “a combination of approaches,” according to a document seen by EURACTIV.

The committee for the internal market will follow suit and is expected to vote its own opinion by the beginning of May.

The last word will be offered to the committee on economic and monetary affairs. The deputy in charge of the dossier is the French Liberal Sylvie Goulard, who has been an early supporter of the introduction of eurobonds as a means to counter the eurozone's financial crisis.

“We are persuaded that eurobonds can play an essential role in fostering financial stability in Europe. They can as well be a key instrument to exit the current crisis,” she said in a recent statement.

Soon after the publication of the Green Paper on eurobonds, the European Parliament agreed a preliminary common text to react to the European Commission's long-awaited initiative.

MEPs led by Goulard and the influential chair of the economic committee, Sharon Bowles, a Liberal MEP from Britain, underlined that the Parliament “believes that the prospect of stability bonds can foster stability in the euro area in the medium term”.

The paper also presented a number of measures to be carried out to make the Commission options more feasible, including “effective market incentives to reduce debt levels”, “a system of differentiation of interest rates among member states with divergent ratings”, “budgetary discipline and an increase in competitiveness.”

Olli Rehn, the EU's economic and monetary affairs Commissioner, said: “The fragmented European sovereign bond market is under great stress. This situation has revived interest in jointly issued euro area bonds to create a large, liquid bond market.”

“The two key findings of the Green Paper on stability bonds are that jointly issued stability bonds would likely produce substantial benefits in terms of reducing and stabilising member states’ borrowing costs, better shock resilience of the financial sector and improved market efficiency over time. But as common bonds would reduce market discipline, their introduction would only be meaningful on the condition that euro area economic governance were to be substantially further strengthened,” he added.

One of the main supporters of eurobonds in Brussels has always been the leader of the Liberal group in the European Parliament, Guy Verhofstadt. “Only a federal solution can provide the Union with the effective tools it requires. National leaders must stop deceiving themselves that national and piecemeal solutions will suffice. Europe needs an integrated economic and fiscal policy for the eurozone and the urgent establishment of a eurobond market,” he said.

In November 2011, the European Commission presented a Green Paper on the feasibility of eurobonds listing three options ranging from the ambitious full replacement of national bonds with eurobonds to a less drastic partial substitution without joint guarantees.

The idea of using eurobonds was first launched by former Commission President Jacques Delors through a 1993 plan for growth, competitiveness and employment: the predecessor of the Lisbon Agenda and the 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 Joaquín Almunia (now in charge of competition) and his successor Olli Rehn have previously supported the idea in principle, but in the past concluded that it was politically not feasible due to German opposition.

  • 26 Apr.: EP Committee on Legal Affairs to present its opinion on eurobonds
  •  30 May: EP Economic Committee expected to hold first debate on eurobonds report
  • 31 May: EP Committee on Legal Affairs to vote on its eurobonds opinion
  •  7 June: EP Internal Market Committee to vote on its eurobonds opinion
  • 18 June: EP Economic Committee expected to vote report on eurobonds

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