Dispute Over Coronabonds Reopens Divisions in the EU

Christian Watjen
By Christian Watjen
April 7, 2020Europe
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BERLIN—European Union finance ministers on Tuesday debated on how to aid its poorer members buckling under the CCP virus crisis—and how to cushion the economic fallout for the whole EU.

The key question hinges on the mutualization of debt, or the so-called coronabonds.

“We have an unprecedented crisis in which we have never faced it in the history of the European Union. …. If there’s anything wrong happens to Italy in the sense of the economy or politics, then the entire block of the euro area will be put in danger,” said Pawel Tokarski, researcher at the German Institute for International and Security Affairs.

Italy and other southern European countries that have been especially hard-hit by the pandemic are demanding more solidarity and unity from other members. They want the bloc to issue so-called coronabonds. That would mean the sharing of debt, and hence lower borrowing costs for more indebted countries.

The northern countries, led by Germany, however, are reluctant to take more guarantees and more risk for the southern countries.

They say the EU’s instruments, especially the European Stability Mechanism, are sufficient. The southern states though are opposed to any strings and stigma that are usually come with the instruments.

Additionally, the EU Commission recently suggested the launch of a European Marshal Plan and suggested other measures to increase the bloc’s firepower.

It’s an old divide in Europe. But unlike during the debt crisis about ten years ago, today support for mutualization of debt is growing. Leading economists and even members of the European Central Bank have spoken out in support of coronabonds.

“Every crisis shows that the instruments that we have had are not enough, that we have to go one step further and adopt new instruments,” Tokarski said.

Officials have until April 9 to design a rescue package and bridge those divisions.

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