There is a clear deadlock in the EU over the Eurobonds or ‘coronabonds’ issue but what is the next step? Juuso Järviniemi discusses.
The coronavirus pandemic might be an unprecedented public health crisis, but the economic debate around it rings familiar. A decade ago, when some European countries were suffocating underneath their debt burden, the solidary solution would have been for Europeans to take on debt collectively rather than leaving member states out in the cold alone – an idea known as Eurobonds. Now that the pandemic is putting member state economies under strain, proponents of European solidarity are speaking of “coronabonds”.
As previously before, the calls for cooperation are coming from the Southern European sphere that is currently bearing the brunt of the crisis. The Netherlands and Germany are once again holding on to their reputation as strict purse-keepers but what’s different from last time, however, is that the European Commission is hardly leading the debate on common bonds.
‘coronabonds’ would mean European countries taking on common debt, thus making borrowing cheaper for the hardest-hit countries and more expensive for countries that are doing better – an idea the member state leaders couldn’t agree on in their video conference on the 26th March. However, various proposals for helping the hardest-hit countries have floated around in the past week.
The European Central Bank has already decided it can now buy as much of any member state’s debt as it wishes, dropping its earlier one-third limit while the European Commission is planning to propose a European-wide unemployment insurance scheme of up to €100 billion to help countries stricken by the virus. This proposal gives new hope for a plan that has been kicked into the long grass for years, and the Commission deserves credit for it.
Some have proposed for the European Investment Bank to issue bonds to stimulate the economy, while others have called for the post-crisis recovery to be supported by common debt bonds which only expire in thirty to fifty years. And now the Dutch government, so vehemently against the idea of common European debt, instead wants to make a €1bn “gift” to European countries in need of help.
The member state leaders’ inconclusive video conference rolled the ball to the Eurozone finance ministers who are due to have a call on the 7th April. Pressure for ‘showing solidarity’ in one form or another is mounting, which promises a fascinating spectacle.
Where’s the Commission?
The European Commission President Ursula von der Leyen jumped into the coronabonds debate on the 28th March by telling the German Press Agency that coronabonds are ‘just a slogan’, and that the Commission is ‘not working on’ the idea. She added that the concerns Germany and other countries have about the bonds are justified. The remarks sparked anger in Italy, forcing the Commission to clarify that it does not exclude any options enabled by the current EU treaties.
The sentiment in von der Leyen’s remarks was nonetheless clear: rather than pushing the coronabonds idea forward, she was standing in the way. Von der Leyen’s reaction compares poorly with that of José Manuel Barroso, who as the Commission President in 2011 presented a 38-page study detailing options for how Eurobonds could be implemented. Nor did Barroso shy away from thinking beyond the legal limitations of the current treaties: he openly admitted that some of the options he presented would require treaty change. Jean-Claude Juncker, von der Leyen’s predecessor as Commission President, was also a supporter of Eurobonds.
When the Dutch Finance Minister Wopke Hoekstra opposes coronabonds, he is just repeating the traditional Dutch position. When Ursula von der Leyen talks down the idea, she is bringing about an unwelcome shift in the European Commission’s discourse. That is why von der Leyen’s comments on coronabonds are even more disappointing than Hoekstra’s.
Do your job
Though it’s the member states rather than the Commission that decide on the fate of coronabonds, the Commission’s role should be to act as an authoritative leader in the discussion on the future of Europe. As with Barroso’s 2011 paper on Eurobonds, the Commission should be a constant source of ideas for how to make Europe work better. When the national governments bound by their domestic interests and short-term electoral constraints bicker among themselves, the Commission needs to take a forward-looking, longer-term European perspective.
The pandemic is von der Leyen’s first opportunity to show her true colours as a European leader, and the coronabond fiasco is a poor start. What’s more, speaking to the German press and explicitly defending the German government’s position on this contentious issue was bad PR for a leader whose nomination last summer prompted some fears of German dominance in the EU. Of all possible Commission Presidents, von der Leyen must be careful to advance the undistilled blue-and-yellow European interest.
Coronabonds are still facing fierce opposition, and the idea might not win consensus in the Eurogroup meeting on Tuesday. Despite this, or indeed because of this, von der Leyen should be preparing ideas for how to make common debt instruments work for everyone. That’s her job.