SHARE
COPY LINK

EUROPE

Eurobonds could stop the downward spiral

The German government doesn't think eurobonds will help Europe out of its debt crisis, but it's high time Chancellor Merkel gave up her stubborn resistance to them. A commentary by Marcus Gatzke from ZEIT ONLINE.

Eurobonds could stop the downward spiral
Photo: DPA

It was surprising news. The Welt am Sonntag newspaper reported this Sunday that the German government was ready to accept the introduction of jointly issued eurozone bonds to save the currency union.

“Preserving the eurozone with all its members is the absolute priority for us,” the paper quoted government sources as saying.

Was this a dramatic U-turn in Berlin’s policy on Europe’s current crisis? Chancellor Angela Merkel immediately despatched her spokesman Steffen Seibert to deny the report, but the truth is it’s high time that Germany give up its resistance to eurobonds – which ease borrowing for heavily indebted countries like Greece while raising costs for more fiscally sound eurozone members.

Why? Because Germany simply cannot go on perpetually bailing out Europe’s ailing economies. Every time EU leaders implement a measure to ease the crisis in one country, it flares up somewhere else – this is clearly an unsustainable situation.

Eurobonds could stop the downward spiral. They would ensure that countries were no longer responsible solely for their own financial liabilities. Instead, the entire eurozone as a whole would guarantee the majority of the debt. The result would be a huge cut in interest rates, and – so it is hoped – the creditors would regain their confidence in the euro.

The criticism that eurobonds would finally seal Germany’s position as the paymasters of Europe does not bear much scrutiny. It is by no means a given that Germany would have to pay markedly higher interest on its debt after the introduction of common debt instruments.

The eurozone’s debt level measured against its economic power is significantly lower than that of the United States, yet US government bonds continue to have extremely low interest rates, despite the recent downgrading by the credit ratings agency Standard & Poor’s.

It’s too simplistic just to average the current interest rates of all national bonds and use that as the standard for future eurozone rates.

But those demanding eurobonds, as a few of the euro’s crisis states are, need to be clear about the consequences: relinquishing complete national sovereignty in financial policy would be crucial.

Brussels would have to make sure that member states keep their finances under control, and would have to wield all the power necessary to ensure just that. Indeed, at the weekend German Finance Minister Wolfgang Schäuble made this a condition of any introduction of common government bonds.

It would also be worth considering forcing every eurozone member to enshrine a debt limit in its constitution – as is the case in Germany.

If this happened, Germany, as the currency area’s strongest economy, would have the opportunity to decisively influence the economic architecture of Europe. At the end of the day, the Europeanization of financial policy would have more effect on the economically weaker countries in southern Europe than it would on Germany.

Those nations would be forced to accept sustainable fiscal policies on a permanent basis. And eurobonds would in no way render economic reforms and budget cuts in Greece, Portugal, Italy and France superfluous – quite the contrary, issuing joint bonds would only reinforce the need for them.

This editorial was published with the kind permission of ZEIT ONLINE, where it originally appeared in German. Translation by The Local.

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.

COVID-19

Court turns down AfD-led challenge to Germany’s spending in pandemic

The German Constitutional Court rejected challenges Tuesday to Berlin's participation in the European Union's coronavirus recovery fund, but expressed some reservations about the massive package.

Court turns down AfD-led challenge to Germany's spending in pandemic

Germany last year ratified the €750-billion ($790-billion) fund, which offers loans and grants to EU countries hit hardest by the pandemic.

The court in Karlsruhe ruled on two challenges, one submitted by a former founder of the far-right AfD party, and the other by a businessman.

They argued the fund could ultimately lead to Germany, Europe’s biggest economy, having to take on the debts of other EU member states on a permanent basis.

But the Constitutional Court judges ruled the EU measure does not violate Germany’s Basic Law, which forbids the government from sharing other countries’ debts.

READ ALSO: Germany plans return to debt-limit rules in 2023

The judgement noted the government had stressed that the plan was “intended to be a one-time instrument in reaction to an unprecedented crisis”.

It also noted that the German parliament retains “sufficient influence in the decision-making process as to how the funds provided will be used”.

The judges, who ruled six to one against the challenges, did however express some reservations.

They questioned whether paying out such a large amount over the planned period – until 2026 – could really be considered “an exceptional measure” to fight the pandemic.

At least 37 percent of the funds are aimed at achieving climate targets, the judges said, noting it was hard to see a link between combating global warming and the pandemic.

READ ALSO: Germany to fast-track disputed €200 billion energy fund

They also warned against any permanent mechanism that could lead to EU members taking on joint liability over the long term.

Berenberg Bank economist Holger Schmieding said the ruling had “raised serious doubts whether the joint issuance to finance the fund is in line with” EU treaties.

“The German court — once again — emphasised German limits for EU fiscal integration,” he said.

The court had already thrown out a legal challenge, in April 2021, that had initially stopped Berlin from ratifying the financial package.

Along with French President Emmanuel Macron, then chancellor Angela Merkel sketched out the fund in 2020, which eventually was agreed by the EU’s 27 members in December.

The first funds were disbursed in summer 2021, with the most given to Italy and Spain, both hit hard by the pandemic.

SHOW COMMENTS