The word coronabond “is a slogan,” said EU Commission President Ursula von der Leyen recently. “The EU is appropriate for the appointment with history,” retorted Italian Prime Minister Giuseppe Conte, one of the main promoters of the coronabond project. “The words of the EU president are wrong, both up to the challenge,” said Roberto Gualtieri, Italian Minister of Economy.
The discrepancy, as we write, seems to have returned. But the situation still seems clear enough: we are at the reissue of the events of 2011/2012, with Italy and the “cicadas” of Southern Europe on one side and Germany and the “ants” of the North on the other, the first favorable all in all, the latter much more cautious and suspicious.
Coronabonds are bonds of the European Union
As the name suggests, coronabonds would be bonds issued not by a sovereign state but by all the countries of the European Union. Let’s say that they are, in fact, a re-edition of the eurobonds hypothesized in the two-year period 2011/2012, and that they never saw the light for the opposition of Germany and the Northern countries, opposed on that occasion for the first time to the countries of Southern Europe (including Italy and Spain).
As you know, the obligation is the financial instrument that allows the issuer to finance itself on the markets and the investor to collect an interest for the money loaned to the issuer. The amount of interest depends on the solidity and reliability of the issuer: the less it is perceived as solid and reliable, the higher the remuneration it will have to offer to investors who agree to finance it.
In coronabonds – as well as in Eurobonds – the rating of each country would not be valid but that of the 27 EU countries all together. Some of which, as mentioned, are clearly more virtuous than Italy, Spain, Greece. And it is precisely this that holds them back, together with an internal public opinion that more or less explicitly supports the “first Germans” (or Dutch, or other) line.
Putting the debt together, then, would imply doing the same thing with fiscal policy, but this is another project that has so far remained on paper.
Who could issue coronabonds?
A European institution or individual states based on their needs, but with a common guarantee behind them. In the first case, it cannot be the European Central Bank, which by statute cannot issue bonds or purchase government bonds on issue (can only buy them on the secondary market).
Someone speculates about a role for the European Investment Bank (the EIB), but at the moment there is no concrete proposal in this regard. To date, only the ESM, set up as a last resort for countries that are facing (or at risk of) financing problems, would have the appropriate tools to do so (at revised rates and much more contained).
What would coronabonds do?
To face the not negligible expenses due to the pandemic:
- health: hospitals, medical, nursing, technical and support staff at various levels, research, purchase of machinery and protective instruments
- revitalizing the economy, with due support for families and businesses
The economic consequences of the freezing of the activities will be heavy, but not everyone currently has the same spending capacity, and the coronabonds would have precisely the purpose of closing the gap.
What alternatives to coronabonds for Europe?
There would be the ESM, the European Stability Mechanism, also known as a State-Saving Fund: its mission is to provide assistance to euro area countries that experience – or are threatened by – serious problems financing on the markets, provided that this is indispensable to “safeguard the stability of the euro area as a whole”. And in any case in the face of specific conditions, such as the reduction of the deficit and the public debt and the implementation of structural reforms. The European Stability Mechanism would be ready to intervene, with 410 billion euros. And the ESM credit line would allow the ECB to activate Outright Monetary Transactions (OMT), direct purchases of short-term government bonds from countries in difficulty.
Alternatively, there would be the establishment of a new Special Purpose Vehicle, a company in which countries place capital and guarantees and which issues securities on the markets. The precedent is and is the EFSF, or the European Financial Stability Facility founded in june 2010 by the member countries of the eurozone: it was the predecessor of the ESM which, as mentioned, exists and would be ready for use.
At present, the only certainty is the Pandemic Emergency Purchase Program (PEPP) launched by the ECB to avoid further pressure on highly indebted euro area countries (including Italy, second in this only to Greece). But the ECB’s PEPP serves to save time and is not the final solution. So again: what alternatives to coronabonds?