EU bond

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An EU bond (also called Eurobond , Euro government bond or joint or union bond ) is a type of government bond that has not yet been realized but is controversially discussed in the European Union , but mostly only in the Eurozone . With this type of loan, EU states would jointly take out debts on the capital market , share the funds raised among themselves and be jointly and severally liable for the repayment and interest of these debts.

At the moment there is neither a unanimous opinion on how EU bonds would be structured in practice, nor a decision as to which such bonds should be introduced in the future. The idea for joint bonds was first heard during the euro crisis , as some heavily indebted euro countries with poor credit ratings had difficult access to the capital market .

It is seen as an advantage of EU bonds that the risk sharing would result in lower interest rates overall than would be the case if the countries took out loans individually. Opponents fear, however, that Eurobonds could deter over-indebted countries from consolidating their budgets . It is particularly controversial whether EU bonds, which would be a further instrument for national debt , can help over-indebted countries out of the crisis, or whether the instrument would not even worsen the debt crisis in such countries. Also, such bonds could legally in Art. 125 TFEU regulated non-assistance clause disagree ( "no bail-out clause").

In addition, some also discuss EU bonds as a possible financing instrument for the budget of the European Union . In the past, EU project bonds were used on a case-by-case basis as a joint financing instrument for individual investment projects or for short-term emergency situations. In the wake of the coronavirus pandemic , proposals for EU bonds were repeatedly referred to by politicians and the media as coronabonds , although some of the so-called concepts differ from the Eurobonds discussed here.

General

One of the main reasons for the increased public discussion about EU bonds is that since the introduction of the euro, some countries in the euro zone have built up levels of debt to such an extent that, based on their own creditworthiness, they can only take out new loans on the capital market at very high interest rates in some cases de facto no longer have independent access to the capital market for further borrowing. This reason is additionally reinforced if such a state generates further ongoing substantial budget deficits, which mean a further future increase in the level of indebtedness and thus a reduction in creditworthiness.

From an economic point of view, it is disputed whether the market mechanism, which "automatically" limits the debt possibilities of states above a certain interest rate via the "price" of interest rates, should be weakened through EU bonds.

From a legal point of view, it is controversial to what extent the instrument of EU bonds would violate the no-bailout clause of the EU treaties because countries with good credit ratings would de facto be liable for the debts of countries with poor credit ratings.

The introduction of EU bonds would require the willingness of the euro countries with lower levels of indebtedness to be liable for less financially strong national budgets and to forego a risk-adequate financial consideration customary in the market. EU bonds would take the market pressure off the insolvency-prone countries to reduce their indebtedness.

Proposals for the structure of EU bonds exist in different variants. Be discussed critically

  • the maximum amount of total debt that may be borrowed using EU bonds,
  • the requirements for a solid fiscal policy of the participating countries,
  • the manner of enforcement (automatic sanctions? interference with the sovereignty of the country?)
  • the type and amount of sanctions in the event that conditions are not complied with,
  • the collateral that participating states should provide in the event of default.

Since there are already existing contractual provisions on fiscal policy (60% debt limit, 3% deficit limit), the main objective is better control and more secure implementation of the existing fiscal policy regulations.

The economically stronger EU states see a high probability that the introduction of Eurobonds will not only lead to an increase in their interest burden, because their creditworthiness would deteriorate due to the additional liabilities assumed (= guarantees), but also that this creates a considerable risk of assuming the debt of State budgets of the crisis states is created. The economically weaker states, for their part, hope for access to better credit conditions - above all lower interest rates - and the possibility that the liable states will de facto assume their debts.

EU member states without excessive budget deficits and indebtedness, especially Germany , are currently (June 2012) rejecting EU bonds; just as young and relatively poor EU countries such as Slovakia and Slovenia. On the other hand, EU states with excessive budget deficits and indebtedness, but also some economically sound states such as Luxembourg, the European Commission and part of the European Parliament are in favor of it (as of December 2010).

Historical development

On January 1, 1999, the euro became the legal accounting currency . It replaced the previous basket currency, the European Currency Unit (ECU), with a conversion ratio of 1: 1. From January 2nd, the European stock exchanges listed all securities in euros ( see also: European Economic and Monetary Union ). Since the exchange rates were irrevocably fixed, individual countries could no longer devalue from January 1, 1999 (or January 1, 2001, Greece).

Proposal for a loan to the EU budget

The proposal to finance the budget of the European Union also through EU government bonds was first put on the political agenda by Jacques Delors in 2003 , but even then did not find a majority. As EU Commission President at the end of the 1980s, Delors played a key role in shaping the plan for European Economic and Monetary Union . The then Commission President Romano Prodi also supported the idea. The political majority, however, continued to oppose this idea; the European Council also opposed it. It was feared that EU bonds would ultimately lead to an unwanted expansion of the EU budget by the member states and to an undesirable increase in the total debt of the EU area.

At the end of 2008, against the backdrop of the global economic crisis , some politicians brought the proposal back into the political discussion. Jean-Claude Juncker , Chairman of the Eurogroup , as well as the Group of the Progressive Alliance of Social Democrats in the European Parliament wanted to increase the debt capacity of the EU area through loans from the EU, in order to implement joint economic policy measures in particular with the funds from the increased debt . The parliamentary group of the European People's Party (Christian Democrats) , but in particular Germany, France and other EU countries, which were supposed to bear the main burden and the main risk, rejected this new approach, the over-indebtedness that had already occurred in some EU countries through further borrowing in the EU - Wanting to solve space.

Proposal for an EU loan for national budgets

Surprisingly, Greece had a serious financial emergency in 2010 after it had played down the development with false statistics in previous years. In addition to the so-called Greece fell in the Euro zone PIIGS -Staaten (= P ortugal, I TALY, I reland, G RECE, S panien) increasingly serious deficit households and high debt in financial difficulties.

The financial markets reflected the increased financial risk of bonds from these countries, recognizable by an increasingly clear interest rate differential between the interest rates that the euro countries with excessive budget deficits and indebtedness had to pay for loans, relative to the lower interest rates of the bonds of the financially more solid euro States. The rising prices for credit default swaps in the PIIGS countries were also an indication of the increased probability of default in these countries.

During the sovereign debt crisis in the PIIGS countries, the European Council decided in May 2010 on a European stabilization mechanism ("euro rescue package") with which the indebted euro countries should be supported. This umbrella is based on loan guarantees from the Member States. Was particularly in Germany and this is by many as a violation of the non-assistance clause criticized ( "no bailout clause").

In connection with the debate on reforming the monetary union , Jean-Claude Juncker and the Italian Minister for Economic Affairs Giulio Tremonti brought the EU bond proposal up again from the end of 2010 . It no longer provided for bonds on the EU budget, but for euro bonds, which should cover the credit requirements of the member states of the euro zone and for which all borrowers should be jointly liable. A new institution, the European Debt Agency , should be set up to issue these bonds . Each member state should be able to issue euro bonds up to a certain percentage of the national gross domestic product (initially a debt ratio of 60% as in the Maastricht Treaty was proposed , later 40%); Each state should continue to bear any debts going beyond this itself. The leaders of the major political groups in the European Parliament support this proposal, but with varying degrees of determination. Guy Verhofstadt , chairman of the liberal group ALDE , also suggested that states that did not adhere to the Stability and Growth Pact should be excluded from the euro bond system. This should make this more enforceable. In December 2010, the chairman of the Social Democratic Party of Europe , Poul Nyrup Rasmussen , and the German SPD politicians Frank-Walter Steinmeier and Peer Steinbrück also spoke out in favor of introducing euro bonds in the medium term.

In particular, Germany , but also France , Austria and the Netherlands rejected the proposal again, since the euro bonds threatened moral hazard : the "communitisation" of debts would reduce the incentive for individual states to pursue a responsible fiscal policy , as the Spread the interest burden on all member states for poor creditworthiness . In addition, it is feared that euro bonds will lead to a higher credit burden for the economically stronger countries, since they should be liable for the repayment of the loans of the less solid countries in addition to their own. In 2010 the average interest rate for government bonds in the euro zone was more than three percent, that for German government bonds only two percent. This difference would result in an additional annual burden for Germany of 17 billion euros. According to other calculations, the additional burden for Germany would be lower if the interest rate for euro bonds were lower than the average value of today's government bonds in the euro area due to the larger size of a euro bond market. The Federal Government does not cite the additional interest burden as a reason for rejection, but the lower incentives for a solid budget policy, and the necessary changes to the FEU Treaty are decisive for its rejection of the bonds.

In June 2011 the European Commission announced a proposal to introduce Eurobonds, provided that the European Parliament had previously approved the so-called "six-pack" to strengthen economic coordination between the member states and tighten the Stability and Growth Pact . There was a conflict between Parliament and the Council of the EU over this legislative package after Germany and France had achieved weakening in important areas. Parliament then threatened to reject the package, which Currency Commissioner Olli Rehn tried to prevent with his proposal.

After a second rescue package for Greece in July 2011 and preparations by the EU to transfer the hitherto provisional euro rescue package from May 2010 to the permanent instrument of the European Stabilization Mechanism (ESM), the German Bundestag agreed.

In view of the worsening euro crisis in August 2011, some countries repeated their wish for Eurobonds; the opponents continue to emphasize their dangers. Giulio Tremonti , at the time Italian Minister of Economic Affairs in the Berlusconi IV cabinet, repeated Italy's wish for EU bonds on August 12, when an Italian austerity package was passed. At the same time, British Treasury Secretary George Osborne spoke out in favor of the introduction of common bonds for the euro zone (not the EU as a whole), and the French government eased its previous opposition.

In November 2011, the pressure on the German government to issue EU bonds increased. In the meantime Greece (Prime Minister Papademos ) and Italy (Prime Minister Mario Monti ) have a new government and Spain a new Prime Minister ( Mariano Rajoy ); the recovery forces in many western countries appear to be weakening, and after the fifty percent debt cancellation of European banks for Greece, the weakness of many European banks has become more evident.

November 2011: Barroso approves of EU bonds

After the parliamentary elections in Spain (November 20, 2011), José Manuel Barroso again called for EU bonds. He presented three possible variants.

In the previous weeks, after tough political struggle, there had been changes of government in Greece and Italy: in Greece, Papademos formed a transitional government; in Italy, Mario Monti became the new Prime Minister after the resignation of long-time Prime Minister Silvio Berlusconi .

Nonetheless, the interest rates on their government bonds did not fall significantly, but remained at around 7 percent nominal interest for 10-year government bonds.

Against the background of these developments and Barroso's new initiative - the EU Commission published a "discussion paper" ( Green Paper ) on November 23rd - the federal debt administration was unable to place the new government bonds offered on the market on that day Billions of euros were offered; 2.1 billion of these (= 35%) remained unsold.

Meanwhile, votes for the Eurobonds are increasing in the black-yellow coalition. For the first time, the ECB is also making a positive statement.

Spain: Autonomous regions do not want to stick to each other

In spring 2012 the euro crisis came to a head in Spain . Among other things, Bankia was nationalized in a great hurry. Some of the 17 independent Spanish regions, which have a similar status to Germany's federal states, currently have to pay even higher interest rates on bonds than Greece.

“In total, the burden on the regions adds up to 140 billion euros. The next Spanish problem lurks there after the banks. In order to relieve the regions stuck in the credit crunch, the government is considering introducing national bonds in which all regions should shoulder the risks together. This upsets the regions that are doing reasonably solidly, as well as some economists. 'It's like comparing Spanish ham with the hard sausage chorizo,' says María Gómez Agustín. 'The two have nothing at all to do with each other - except for the fact that both come from pigs.' "

Germany rejects EU bonds

On June 26, 2012, German Chancellor Angela Merkel vehemently rejected the introduction of Eurobonds in a statement before the Bundestag.

Both in the coalition agreement for the 18th parliamentary term and in the coalition agreement for the 19th parliamentary term , the CDU / CSU / SPD have agreed not to support Eurobonds.

Economic debate

The valuation of Eurobonds is controversial among economists. While the clear majority of German economists warned against its introduction, in a Europe-wide survey of sixty economists the majority were in favor. The additional costs that economically strong countries like Germany would incur are assessed differently. Critics fear an inevitable rise in interest rates for Germany. While the Ifo Institute for Economic Research puts them at up to 47 billion euros annually, journalists like Robert von Heusinger speculate that Germany could even benefit economically from Eurobonds due to the higher liquidity. Most estimates fall between these two extremes. The Federal Ministry of Finance expects additional costs of up to 2.5 billion euros in the first year of introduction, and twice as much in the following year. After ten years, the additional burden would be between 20 and 25 billion euros. The finance ministry experts believe that interest rates on euro bonds would rise by around 0.8 percentage points compared to Bunds.

Proponents argue that euro bonds have a higher status than traditional government bonds and because of joint and several liability , which would be beneficial for everyone. The bond market, with the participation of all member states of the euro zone , could be worth 5,600 billion euros (the market for US government bonds is 8,300 billion US dollars) if states adhered to the debt limit of 60% (which has not worked so far) ). The joint risk of default with a maximum of 60% indebtedness per country would then be lower than the current consolidated risk of default of all national states combined, which are currently in some cases significantly overindebted. The lower risk of default would result in lower interest rates. At the same time, however, the necessity of not overstretching the national debt beyond a certain limit is emphasized: Any debt exceeding a defined national debt ratio would, instead of the expected benefits, mean a worse status, a higher risk of default and lower liquidity, which would lead to higher interest rates would. Access to Eurobonds must therefore be linked to certain conditions.

In its annual report for 2011/2012, the Council of Economic Experts advocates, subject to strict fiscal discipline such as national debt brakes in the constitutions, jointly defined medium-term consolidation and growth strategy, national tax to repay debts and pledging of part of the national currency reserves (foreign exchange - or gold reserves) to secure the liabilities (published on November 9, 2011) a “ European Debt Redemption Fund ”.

Experts who reject the proposal argue that the mutualization of debts and interest costs through EU bonds would further weaken national responsibility for sound budget management and debt policy. They point out that even after the introduction of the euro, some euro states could not withstand excessive fiscal and debt policies, even though there were contractual agreements on a 3% deficit and 60% debt limit. As a result, the introduction of EU bonds would simplify unsound budgetary and indebtedness for deficit and debt “sinner” by subsidizing the interest costs for excessive expenditure and relieving them of the burden of repaying excessive debts through the liability of more solid countries would. They also emphasize that the cost estimates of only a few billion euros in annual additional costs for solid states are greatly understated, as they would have to pay several 1000 billion euros in an explicit liability case. In the current only implicit liability case of the sovereign debt crisis in the euro area, in which liability is prohibited under the Maastricht Treaty , the more solid states had to provide several hundred billion euros in loans and guarantees to rescue the less solid states in order to avert national bankruptcies in the euro area.

In 2020, Eurobonds were discussed as a possible answer to the Corona crisis. An expert survey by the Center for European Economic Research (ZEW) among leading financial market experts resulted in a predominant rejection of the instrument, which was only approved by 15% of the experts. On the other hand, one of the main eloquent words is the government coalition of Italy , which wants the funds from the bonds as a "lost grant" from the EU or as an interest-free loan with a perpetual term.

Legal debate

From a legal perspective, both European and constitutional admissibility is controversial. In any case, Eurobonds with joint and several liability violate Art. 125 TFEU (so-called bail-out clause).

At the level of the Basic Law, it should be noted that according to the Federal Constitutional Court, every single possible issue must be approved by the Bundestag. In the context of the previous rescue measures, it was also demanded that there is still sufficient parliamentary influence on the way in which the funds made available are dealt with.

In the context of Eurobonds, the absolute upper limit of liability is also being considered again. The establishment of an upper limit for the sum of the obligations arising from Eurobonds appears difficult from a legal point of view, because the Basic Law only sets explicit upper limits for new borrowing through loans (Art. 115 II GG). This does not include guarantees. In some cases, the upper limit is the refinancing of the maximum drawdown. In any case, the occurrence of liability from Eurobonds cannot be refinanced in an emergency with the joint and several Eurobond model. However, the refinancing ability of the probable utilization is also represented as an absolute upper limit. For the admissibility of Eurobonds under the Basic Law, the assessment of the liability risk of the individual bond issue would then be decisive.

EU project bonds

A small number of jointly secured bonds known as the New Community Instrument already existed in the 1970s and 1980s. However, they were only used for individual investment projects or for short-term emergency relief situations , such as after earthquakes in Italy and Greece. In 1975 a larger joint loan was set up to cushion the consequences of the oil crisis. Such an instrument was called for again by some economists in 2020 because the corona pandemic would be a similar symmetrical shock to all EU member states.

Such “mutual financial guarantees for the joint implementation of a specific project” are expressly provided for in Art. 125 TFEU , while otherwise the mutual liability of the European Union and its member states for one another is excluded by the non-assistance clause .

In December 2010, EU Commission President Barroso proposed the reintroduction of such EU project bonds on a larger scale, while Energy Commissioner Günther Oettinger suggested in February 2011 that the expansion of the trans-European energy networks should be financed through joint project bonds.

literature

  • Andreas Buser: The European and constitutional admissibility of so-called Eurobonds , in: Berlin Online Contributions to European Law, No. 89, 2013, pp. 1–20, available at: http://www.portal-europarecht.de/ index.php? option = com_jdownloads & Itemid = 17 & view = finish & cid = 11303 & catid = 5
  • Werner Heun and Alexander Thiele: Constitutional and European law admissibility of Eurobonds , in: JuristenZeitung, 2012, pp. 973–982.
  • Forum: Common Euro Bonds: Necessary, Wise or to be Avoided? , with contributions by Paul De Grauwe / Wim Moesen, Wim Kösters and Thomas Mayer , in: Intereconomics , May / June 2009, pp. 132–141.
  • Norbert Horn: The Reform of the European Monetary Union and the Future of the Euro , in: NJW 2011, 1398–1404.
  • Norbert Horn: Legal Issues of a Debt System for EU and Euro Countries - External Bonds and Bank Loans , in: Wirtschaftsdienst , 90th Jg. (2010), H. 12, Conversation: Ways out of the European National Debt Crisis, pp. 797-800, doi : 10.1007 / s10273-010-1154-x .
  • Dietmar KR Klein: Why not Euro bonds? , in: Journal for the entire credit system 2011, p. 9.
  • Toralf Pusch, Marina Gruševaja: Current account imbalances in the EU - a challenge for fiscal policy? , in: Wirtschaftsdienst , 91st vol. (2011), no . 7, pp. 465-471, doi: 10.1007 / s10273-011-1249-z .
  • Franz C. Mayer, Christian Heidfeld: Eurobonds, debt redemption funds and project bonds - a dark threat? , in: Journal for Legal Policy, 2012, pp. 129–133.
  • Sebastian Müller-Franken: Eurobonds and Basic Law , in: JuristenZeitung, 2012, pp. 219–225.
  • Hans-Werner Sinn , Timo Wollmershäuser: Target loans, current account balances and capital movements: The ECB's rescue package , in: Ifo Schnelldienst , special edition June / 2011, pp. 1–29.
  • Nicolas Sonder: Solidarity in the monetary union: Greece, Ireland and no end? , in: ZRP 2011, 33–36.

Web links

Individual evidence

  1. ↑ DER SPIEGEL: Corona crisis: Italy insists on corona bonds - DER SPIEGEL - Wirtschaft. Retrieved April 20, 2020 .
  2. ↑ See e.g. B. Jan Philipp Brosius: "The legality of bilateral rescue loans" . Info-Point Europa, Hamburg, article 06/2010.
  3. ↑ a b c d EU parliamentarians are in favor of euro bonds . In: Spiegel Online . December 14, 2010.
  4. ↑ a b Recession hits Europe - EU bonds stimulate discussion . In: EurActiv . November 19, 2008.
  5. ↑ Federal government rejects new rescue idea . In: Focus . December 6, 2010.
  6. ↑ 'Leaders putting national interest ahead of Europe', says EU Parliament . In: EUobserver . December 18, 2010.
  7. ↑ Germany must lead fightback . In: Financial Times . December 14, 2010.
  8. ↑ No chance for Eurobonds at the EU summit  ( page no longer available , search in web archives )  Info: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice. . @1@ 2Template: Toter Link / www.stuttgarter-zeitung.de  In: Stuttgarter Zeitung . December 14, 2010.
  9. ↑ if one unrealistically assumed ceteris paribus
  10. ↑ Dangerous guarantees . In: Frankfurter Allgemeine Zeitung . December 14, 2010.
  11. ^ Berlin against purchase of government bonds via euro umbrella . In: Reuters . December 13, 2010.
  12. ↑ EU economic government: Council angry Parliament . In: EurActiv . June 21, 2011.
  13. ↑ Economic government: Rehn lures EU Parliament with Eurobonds . In: EurActiv . June 23, 2011.
  14. ↑ Handelsblatt: Tremonti renews call for Eurobonds ; Der Spiegel: Europeans are pushing Merkel into euro bonds .
  15. ↑ Euro crisis: printing money against panic
  16. ↑ stern.de: Eurobonds as a means against the debt crisis: EU tinkers with a miracle weapon
  17. ↑ Berliner Zeitung: Eurobonds in the budget debate: German government bonds are selling poorly
  18. ↑ ftd.de: Front against Eurobonds is crumbling ( Memento from November 24, 2011 in the Internet Archive )
  19. ↑ a b zeit.de June 10, 2012: Spain still owes many answers. - A grant of 100 billion euros could possibly save Spain's banks. But Europe is turning a blind eye to the indebtedness of the regions.
  20. ↑ focus.de: focus.de: "As long as I live": Chancellor Merkel is resisting Eurobonds
  21. ↑ EurActiv : German economists say 'Nein' to 'disaster' eurobonds
  22. ↑ EurActiv : Bankers, economists see eurobonds as inevitable .
  23. ↑ Handelsblatt : What Eurobonds really cost Germany .
  24. ^ Robert von Heusinger : The cost of euro bonds , Frankfurter Rundschau, August 18, 2011.
  25. ↑ Government anticipates billions in costs from euro bonds
  26. ↑ Expert opinion on page 109ff .: www.sachverstaendigenrat-wirtschaft.de ( Memento from November 12, 2011 in the Internet Archive )
  27. ↑ Financial market experts largely reject corona bonds. In: ZEW Financial Market Report May 2020. April 23, 2020, accessed on April 25, 2020 .
  28. ↑ Udo Gümpel: "Italy goes into ruin with donation pants" n-tv.de from May 3, 2020
  29. ↑ Buser, in: Berlin Online Contributions to European Law, No. 89, pp. 1 ff .; Müller-Franken, Eurobonds and Basic Law, Juristen Zeitung 2012, p. 219 ff .; Mayer / Heidfeld, Constitutional and European Law Aspects of the Introduction of Eurobonds, Neue Juristische Wochenschrift 2012, p. 422 ff .; Heun / Thiele, Constitutional and European law admissibility of Eurobonds, Juristen Zeitung, 2012, p. 973 ff.
  30. ↑ Buser, in: Berlin Online Contributions to European Law, No. 89, p. 12.
  31. ↑ BVerfG, Juristen Zeitung 2011, 1004 (1009, Rn. 128).
  32. ↑ Müller-Franken, Eurobonds and Basic Law, Juristen Zeitung 2012, p. 223.
  33. ↑ Buser, in: Berlin Online Contributions to European Law, No. 89, p. 18; Müller-Franken, Eurobonds and Basic Law, Juristen Zeitung 2012, p. 224.
  34. ↑ Buser, in: Berlin Online Contributions to European Law, No. 89, p. 16 f.
  35. ^ German economist Hüther: "Without a joint loan, I see black for the EU". Retrieved May 20, 2020 .
  36. ↑ Barroso promises progress on EU project bonds ( Memento from December 21, 2010 in the Internet Archive ). In: EurActiv . December 15, 2010.
  37. ↑ Oettinger wants to finance the power grid with an EU bond . In: Spiegel Online . February 4, 2011.