Luis Garicano, 05 May 2020

The idea that Europe’s response to the economic crisis should be based on the issuance of common perpetual bonds has been slowly gaining ground, but proposals that entail substantial increases to member states’ debt risk hampering growth for decades to come. This column argues that the time has come for genuine European spending financed through European borrowing. It examines the legal and financial issues around the possible implementation of a proposal for the Commission to issue consolidated annuities (‘EU Consols’) to finance a €1 trillion economic reconstruction package.

Timo Löyttyniemi, 30 April 2020

The Covid-19 crisis is raising the financial burden for governments in Europe and worldwide. The current focus is on short-term immediate actions and targeted financial benefits to minimise the negative economic impacts. Soon the discussion will focus on how to manage the sovereign debt burden. In Europe, the public debate has centred around Coronabonds, while inflationary solutions have also been receiving academic attention. This column argues that a more practical solution is to introduce simple, temporary ‘coronataxes’ over the next five to ten years. These taxes could be implemented nationally and supported by European-level coordination.

Daniel Gros, 22 April 2020

Consensus is forming in Europe that a united response to the coronavirus crisis is needed. Multiple proposals for a ‘solidarity fund’ have been made, along with suggestions for how to finance it. This column argues that a one-time EU-wide levy on financial assets could raise €300-400 billion, and thus finance a European Solidarity Fund. This levy would be non-distortionary, could be implemented quickly through financial intermediaries, and would avoid the need for controversial Coronabonds.

Roberto Perotti, 21 April 2020

In response to the pandemic, several proposals have been advanced to mobilise large amounts at the European level, mostly to address the needs of periphery countries. This column argues that because these proposals do not take into account the preoccupations of core countries, the outcome is likely to be general disappointment and recriminations. It offers an alternative proposal, based on the notion that periphery countries are much better equipped to make it on their own than is commonly thought, with a little help from the ECB.

Sebastian Horn, Josefin Meyer, Christoph Trebesch, 15 April 2020

The introduction of European Coronabonds is sometimes described as an unprecedented step that would create a dangerous precedent of debt mutualisation. This column shows that this view is wrong and ignores the history of European financial cooperation. Since the 1970s, the European Commission has placed more than a dozen community bonds on private markets, which were guaranteed by the member states and distributed to countries in crisis. These bonds have been fully repaid in the past. Coronabonds with joint and several liability go a step further, but they would stand in a long tradition of European financial solidarity and cooperation.

Thorsten Beck, 07 April 2020

There has been a lot of discussion in recent weeks on whether an EU-wide fiscal policy response to COVID-19 should include common liability for the additional debt that such a response would imply. This column lays out the arguments in favour of such an approach – arguments that go beyond economic ones.

Romesh Vaitilingam, 06 April 2020

As the European economy experiences a severe economic contraction as a result of the coronavirus lockdowns, the IGM Forum at Chicago Booth invited its panel of leading European economists to express their views on Europe’s economic policy response to the COVID-19 crisis: on whether the economic benefits from lockdowns are likely to outweigh the costs over the medium term; and on the desirability of a euro area fiscal policy response to supplement national measures, including the possibility of issuing new pooled debt instruments – ‘Coronabonds’ – to fund government spending. This column reports three quarters of the experts agreeing that severe lockdowns are likely to be better for the economy in the medium term than less aggressive measures; over 90% calling for pan-European fiscal policy measures; but more divided opinions on the need for Coronabonds.

Aitor Erce, Antonio Garcia Pascual, Ramon Marimon, 06 April 2020

Member states are currently debating how to finance the fight against COVID-19. As time is pressing, practical and readily implementable solutions are needed now. Using the ESM to provide the funds needed is a reasonable and workable way forward. Italy, Spain and other states would benefit from using the ESM access to AAA funding to reinforce their debt dynamics: a combination of loan size, maturity and interest rates would strengthen debt sustainability. This column shows the stabilisation power of an ESM-ECB intervention, using existing instruments and the just announced ESM Rapid Financing Instrument, showing the case of Italy as an example. Combining ECB support with ESM funds would deliver a more resilient euro area, better placed to engage in a post-virus economic recovery. The announced EIB guarantees and the SURE unemployment re-insurance will also help countries. However, these measures are not a supplement, but a complement, to the already feasible ESM financing discussed.

Lorenzo Codogno, Paul van den Noord, 05 April 2020

The emergency measures in place to absorb the COVID-19 shock need to be supplemented by OMT unless leaders agree to create a euro area safe asset and fiscal capacity. This column employs an empirically calibrated model to show that OMT is second-best to the creation of a safe asset and fiscal capacity at the centre, but would still be a powerful means to mitigate the economic impact of the crisis. 

Julian Pröbstl, 04 April 2020

The massive fiscal packages being deployed in Europe raise issues of financing. Economists have proposed three main models. This column offers a pragmatic legal perspective on the options, focusing on their compatibility with EU Law, the ESM Treaty, and German Constitutional Law. It argues that, from a practical legal standpoint, the use of the ESM is preferable to issuing Coronabonds, because it offers more legal certainty and could be implemented more quickly. However, jointly issuing Coronabonds would send the stronger political signal.

CEPR Policy Research