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Covid-19: Ireland joins calls for Coronabonds March 25, 2020

Posted by Citizen of Nowhere in Uncategorized.
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Ireland is one of nine countries, (for the record, France, Spain, Italy, Portugal, Ireland, Greece, Slovenia, Luxembourg and Belgium) representing about 200 million European citizens, who have called for funding the efforts needed to fight the virus collectively in a common bond backed by all Eurozone members, with the risks being shared.

German and the Netherlands, representing 100 million citizens or so, oppose it at the moment.

In a joint letter to the EC president, the RoI and 8 others are demanding:

…a common debt instrument issued by a European institution to raise funds on the market on the same basis and to the benefits of all member states.

and

The funds collected will be targeted to finance in all Member States the necessary investments in the healthcare system.

Details of how the European Stability Mechanism might be used are still unclear, and collective bonds are a great deal more straightforward and longer term. As the letter states:

This common debt instrument should have sufficient size and long maturity to be fully efficient and avoid roll-over risks now as in the future.

Hell there might even be mutual buying of Eurozone and Chinese bonds, to try to make the financial capitalist world less dollar-centric.

I have a theory, for what it’s worth, that Christine Lagarde’s ‘gaffe’, where she drew attention to the ECB’s supposed non-task of ensuring there wasn’t too wide a spread between the yields of different Eurozone nations’ bonds, was deliberate. Her aim was to bring the issue of risk-sharing immediately to the fore while the crisis is acute and new in order to bounce the German government into action. Lagarde has long been an advocate of Eurobonds, with risk-sharing across the currency area.

But how long can the monetarists (yer father’s old economic superstition) and the mercantilists (yer great-great-great-grandfather’s) of the German Bundesbank and their proxies in the ECB council prevail in exercising their veto? It would a big leap for German political-economic orthodoxy, the public here having fed on the pap – right down to propaganda in Bild Zeitung – of the irresponsibility of everyone except the German nation when it comes to debt.

But if the Eurozone is to survive this crisis, risk-sharing and collective debt sovereignty-sharing is what it’s going to take.

Comments»

1. Dermot M O Connor - March 25, 2020
2. CL - March 26, 2020

“But these deficit-financed interventions must be fully monetised. If they are financed through standard government debt, interest rates would rise sharply, and the recovery would be smothered in its cradle. Given the circumstances, interventions long proposed by leftists of the Modern Monetary Theory school, including helicopter drops, have become mainstream.
Unfortunately for the best-case scenario, the public-health response in advanced economies has fallen far short of what is needed to contain the pandemic and the fiscal-policy package currently being debated is neither large nor rapid enough to create the conditions for a timely recovery. As such, the risk of a new Great Depression, worse than the original – a Greater Depression – is rising by the day.”-Roubini
https://www.theguardian.com/business/2020/mar/25/coronavirus-pandemic-has-delivered-the-fastest-deepest-economic-shock-in-history

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3. Daire O'Criodain - March 26, 2020

As long as ECB has taps full on and governments can borrow under their own steam, I find it hard to see Germany taking the bait. What other countries call mutualisation, Germany sees as (mainly) German underwriting – and its hard to say that’s not true. And, while it might be equally true that German economy benefits in all kinds of ways from being the economic fulcrum/centre of the EU that counterbalance the cost/risk of that underwrite, that “You owe us” argument will have the Germans deeper in their own trenches. To get off the ground, this concept has to be a trade, not a unilateral ask.

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WorldbyStorm - March 26, 2020

Interesting point Daire. What is your sense of what would be in line for a trade?

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CL - March 26, 2020

“northern European countries — especially Germany and the Netherlands — have continued to oppose a measure long advocated by many economists, the sale of so-called Eurobonds, or debt backed by all 19 countries that use the euro currency.
Such bonds could potentially fill a gaping vulnerability in the structure of the euro, giving markets confidence in the endurance of the currency.
Eurobonds have long constituted a political impossibility. Voters in Berlin and Amsterdam cannot countenance having their finances tethered directly to their cousins in Athens and Rome. That may still be true. But if there were ever a time that conditions conspired to break the deadlock, this might be it…

The pandemic has exposed the consequences of austerity, forcing Italian doctors to make anguished choices about who lives and who dies in the face of a shortage of respirators. It has deprived the wealthiest people of their customary feeling of protection.
“Everybody is concerned,” Ms. Crespy said. “Everyone is threatened in the same way. What is at stake is the E.U.’s capacity to mount collective action. Something will have to be done.”-

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Daire O'Criodain - March 27, 2020

I genuinely don’t know. My recall is that the letter from the “Nine” of a few days ago simply expressed a desire rather than putting forward a proposal. I’d say this though. Ask not of Germany that it does something for you unless you are willing to say what you will do for Germany (and NL). I would have said that giving them confidence that, in normal terms whatever about now, Eurozone states will operate at least try really hard to operate within the fiscal constraints to which they all signed up in 2012 (and from which Macron notably resiled to get past the GJ). Its a bit like a bank only offering you a loan (umbrella) when you don’t need it (the sun is shining), Germany will be eternally suspicious of Eurobonds if they are introduced when they might be needed. I am not saying those fiscal constraints are intrinsically a bad thing. It is enough in this debate that Germany thinks very strongly they are a good thing. There might be something around making Eurobonds the most senior government obligation in its debt portfolio, but that might be a hard sell to other lenders.

But loud calls: “We want Eurobonds and we want them now!” are virtue signalling rather than serious engagement.

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Daire O'Criodain - March 27, 2020

I meant “intrinsically good”, not “intrinsically bad”….

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WorldbyStorm - March 27, 2020

It’s certainly going to be a process of negotiation whatever about the outcomes or indeed inputs. Not keen on the term virtue signalling but I take your point.

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4. Europe during the crisis | The Cedar Lounge Revolution - March 27, 2020

[…] There is a threat though, albeit not to the EU as such, and Citizen of Nowhere alluded to it on Wedn… As CoN notes: […]

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5. CL - March 28, 2020

Coronabond
“In a letter to European Council president Charles Michel, the worst affected countries – France, Spain and Italy – argued that “this common debt instrument should have sufficient size and long maturity to be fully efficient and avoid roll-over risks now as in the future. The funds collected will be targeted to finance in all Member States the necessary investments in the healthcare system.” …
However, opposition was swift and from predictable quarters. Germany, the Netherlands and Austria, the most implacable foes of eurobonds during the financial crisis, signalled their opposition….
The German delegation warned that coronabonds would never get passed the Bundestag, or the German constitutional court….
The Dutch prime minister Mark Rutte recalled that the ESM, and its predecessor the European Stability Facility Mechansim (ESFM), had obliged Ireland and Portugal to implement necessary and, he said, successful economic reforms.”
https://www.rte.ie/news/2020/0327/1126913-tony-connelly-analysis-euro-crisis/

“Economist Colm McCarthy has warned the recovery of the Irish economy post-Covid-19 is linked to external factors, especially to the swift recovery of the US economy….
Mr McCathy said Ireland was pulled out of the financial crash in 2012-2013 by foreign demand.”
https://www.rte.ie/news/2020/0328/1126970-mccarthy-covid-economy/

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6. Daire O'Criodain - March 28, 2020

WBS: you’re right. Virtue signalling was shrill. I was in a hurry to finish! Don’t hesitate to call that kind of thing out! Tub thumping might be a better description.

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WorldbyStorm - March 28, 2020

Tub-thumping! Like it.

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