When is a eurobond not a eurobond?
The extent of the row following last week’s teleconference of EU leaders on the issue of the economic response to the crisis has led to a search for a way forward. It is clear that some Northern European countries, notably the Netherlands and Germany, will not sign up for a move to commonly raised debt – so-called eurobonds – at least not for now. But might they buy in to something which would be packaged as a ring-fenced response to the crisis?
EU leaders have asked their finance ministers to look at where to go next. The most likely first step is to make the funds within the European Stability Mechanism (ESM) available as a credit line to countries who needed it. One key problem here is what conditionality would be attached to such credit provision.
The ESM may indeed provide a tool which can be used – and for the moment the support of the European Central Bank means the markets remain open for borrowing at reasonable rates anyway. At least for now.
For the moment, the euro zone response is all about the ECB and its intervention
However, France is right to push the case for more. The EU needs not only a plan to fund the crisis response, but also to help pay for the recovery. It is proposing the establishment of a special fund – time-limited to deal with the crisis response.
This fund would be able to borrow to raise cash, though on what basis it would do so remains as yet unclear. The borrowing element of any fund would operate on the same principles as eurobonds, or coronabonds. And so the same objections may emerge.
The scale of the crisis may move the politics of this along in the months ahead. The EU needs to come forward with some proposals of scale – and not just fall back on a range of the usual schemes which, while useful, will not do the job.
For the moment, however, the euro zone response is all about the ECB and its intervention, which provides vital support as countries, including Ireland, start to tap the market to raise the cash now needed.
