Coronabonds, the united tool that breaks Europe

Audio 4:12

By: Dominique Baillard Follow

All heavily affected by the coronavirus, the 27 EU member countries are more divided than ever on the issue of coronabonds, mutualized joint obligations dedicated to the coronavirus. The finance ministers of the euro zone are to decide this Tuesday afternoon by videoconference. How do these coronabonds work? Is this really the best way to finance the rescue of the euro zone?

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For the moment, European countries are doing alone, each in their corner. Most finance the support for their economy by providing new loans at the national level. Including the most indebted, such as Spain and Italy, where the weight of the debt greatly exceeds the annual GDP. But we are only at the beginning of the economic crisis. The most indebted therefore risk at one time or another having trouble borrowing on the markets, and above all it will cost them more and more. Pooled bonds issued on behalf of the entire eurozone could provide these fragile states with fresh money at almost zero cost, thanks to the participation of states like Germany, which today borrow at negative rates. These coronabonds, which 14 countries therefore call for, would give access to equal and free financing to all Member States. It is a real solidarity tool.

But for northern countries, led by Germany, the question of debt pooling remains a taboo

" Never in my lifetime " proclaimed Angela Merkel in 2012 when the idea of ​​eurobonds emerged during the debt crisis. Austria, Germany, the Netherlands and Finland are allergic to any idea of ​​financial solidarity. For economic reasons. But above all political. This project is electoral unsustainable. But this time it is not the same explains the British economist Erik Jones: in 2020 it is not a question of converting an old and expensive debt contracted by the pseudo-cicadas of the euro zone into cheap debt as it was the case during the crisis of the 2010s but to issue new debt for a limited period, as recommended by the French Minister of Economy Bruno Le Maire.

If the Eurogroup fails to find agreement on coronabunds, what is plan B?

There is a whole range of solutions. Jean Tirole, the Nobel Prize in economics, advocates massive action by the ECB: by buying even more public debt, it would drastically reduce its cost and the repayment schedules could be postponed indefinitely. A politically painless track, which will undoubtedly be explored in the medium term, provided that Germany accepts it.

Another possibility already on the table is the use of the European Stability Mechanism created during the debt crisis. Refused en bloc by the countries of the South, because their finances would again be under the supervision of Brussels as provided for in the terms of the mechanism. Klaus Regling the director of the Fund promises to abandon this condition. Without success, neither Italy nor Spain want it, for fear of being stigmatized on the markets and therefore doomed to see their rates rise even more. But it is also for political reasons that these countries have raised this proposal.

The lack of European solidarity is experienced among them as a humiliation and could cause anti-European sentiment to flare up. This is how the coronabond, imagined as an original financial management tool, has become a political issue, even an existential question for the future of Europe. This shows the responsibility that weighs today on the shoulders of the finance ministers of the euro zone.

► Read also : The Eurogroup facing the challenge of European unity

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