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The last European Council summit ended on 27 March without a decision on the EU’s economic response to the coronavirus pandemic. EU heads of states in particular failed to reach agreement on so-called ‘coronabonds’ – or joint debt for which all EU countries would be equally liable – to cover the costs of the corona crisis.
Back in 2014, a similar concept of Eurobonds was being debated in the aftermath of the euro zone debt crisis. However, as with now, Germany was the leading ‘bond villain.’
In the other camp, Italy is currently leading the charge in favour of common European bonds to share the burden of debt generated by the economic response to the pandemic.
The heads of state and government will be meeting again virtually on Thursday (23 April), and whether a happy conclusion can be reached this time will largely depend on the issue of ‘coronabonds.’
Debt sharing remains a hot potato in Berlin. During the euro debt crisis of 2010, the call for joint bonds was raised as a sign of solidarity towards Greece, which could hardly find any buyers for its government bonds at the time. If all countries were to issue bonds together, there would be immediate buyers, because countries with high credit ratings (such as Germany) would be acting as co-guarantors. But the earlier concept of ‘Eurobonds’ failed due to the resistance of such thrifty states who wanted to avoid having to answer for the financial misconduct of others.
Opposition from its own ranks
The concept was revived in the wake of the coronavirus crisis in order to support highly indebted states such as Italy to withstand the economic shock of the coronavirus. However, the German government quickly rejected the idea.
Economy Minister Peter Altmaier of the Christian Democratic Union (CDU) described the discussion as a “ghost debate,” and Chancellor Angela Merkel (CDU) also rejected the idea referring instead to other instruments such as the European Stability Mechanism (ESM), the EU’s bailout fund.
After the G20 summit in March, the chancellor said that the ESM “opens up many opportunities for us, which does not call into question the basic principles of our common, but then again, respective responsible actions.”
To the outside world, the German position seems clear, and the government is stonewalling in solidarity, particularly with coalition partners from the Social Democrats (SPD) also speaking out against ‘coronabonds,’ such as Finance Minister Olaf Scholz and Foreign Minister Heiko Maas.
But the governing parties are being criticised, including from their own ranks.
Former Bundestag President and now chairman of the Konrad Adenauer Foundation, Norbert Lammert who has close ties to the CDU, told the newspaper Süddeutsche Zeitung that Germany’s categorical rejection of joint bonds “has long since caused greater political damage than any expected economic relief.”
Former Economy Minister Sigmar Gabriel (SPD) tweeted: “Rather Euro- and Coronabonds than a destroyed EU.”
Bleibt es dabei, werden sich die Südeuropäer noch lange daran erinnern. Lieber Euro- und Coronabonds als eine zerstörte #EU.
— Sigmar Gabriel (@sigmargabriel) March 25, 2020
Recovery Bonds: A feasible compromise?
However, since last Friday, the James Bond series’ plot has thickened.
The EU Parliament passed a resolution on EU measures against the COVID-19 crisis, which, among other things, advocates for “recovery bonds” guaranteed by the EU budget.
Remarkably, the resolution was passed with the support of German MEPs from the conservative CDU/CSU, the socialist SPD and the liberal Free Democratic Party (FDP). Meanwhile, German MEPs from the Greens, the Left Party (Die Linke) and the Alternative for Germany (AfD) either abstained or voted against.
To give a broader perspective of the bond debate in Germany, EURACTIV Germany spoke to MEPs from all parties. First, what does the EU Parliament mean by so-called ‘recovery bonds’? Is this just another word for an old idea?
The resolution is clear that “recovery bonds” should definitely not used to pool existing debt, but to mutualise debt generated by future investments to recover from the coronavirus crisis. And they would be guaranteed by the common EU budget.
However, since money would be coming from national contributions to the EU budget, richer countries like Germany would end up paying more, according to the relative size of their economy.
Does this mean Germany would be liable for Italy after all?
“To a certain extent, this fulfils the idea of coronabonds,” admitted MEP Niclas Herbst (CDU). But the money would not pool old debts as it would be used to invest in the future, he pointed out. “This is a compromise,” said Herbst, adding that it is something the CDU could support.
Given that the resolution’s support was coordinated at the federal party level, Herbst was “positive” that there would be “movement” on the part of the German government in the EU Council. In the Bundestag, a CDU source also told EURACTIV that the Christian Democratic Party and the chancellor could, in principle, make do with European bonds guaranteed by the EU budget.
