Common EU aid: Opportunities and risks: Are corona bonds also suitable for private investors? | message
The corona virus plunges Europe into complete health, political and economic chaos. The crisis particularly hard hit the desolate economic areas of the southern member states. Accordingly, the southern European countries are now pushing for a joint solution or a large European rescue plan, which is to be financed with the help of community bonds or so-called corona bonds. The Netherlands, Austria and Germany have so far vehemently resisted joint debt.
A message for the “dear German friends”
To clarify the seriousness of the situation, Italian politicians from various parties have even turned directly to the German public. In a full-page advertisement, which started with the words “Dear German Friends”, the politicians in the Frankfurter Allgemeine Zeitung campaigned for approval for so-called corona bonds and appealed to solidarity within the European Union.
Old wine in new bottles?
The idea of a common debt within the European Union is almost as old as the Union itself. Basically, corona bonds are nothing more than euro bonds, that is, common bonds that are issued by all European countries together. In contrast to the euro bonds, the funds from the corona bonds are not to be used to repay old public debts, but only to combat the economic consequences of the pandemic.
A bad deal for the Federal Republic
Spain, Portugal, Greece and Italy would be the main beneficiaries of such joint bonds, since these countries hardly receive cheap loans due to their dilapidated economy and the already very high debt mountains. Because while the Federal Republic of Germany is currently even receiving money when placing a bond, the southern European countries can hardly bear their interest burden due to their poor credit rating.
However, this problem would be solved immediately with euro bonds or corona bonds. Because for the community bonds all member states of the EU would be liable and the southern Europeans would directly benefit from very low interest rates due to the excellent creditworthiness of Germany, Austria and the Netherlands. As a result, however, the more stable countries could quickly come into imbalance, since these would be directly dependent on the payment behavior of the Italians and Co.
Corona bonds for private investors?
If the European Union should actually issue corona bonds, they will most likely also be tradable by private investors. In all likelihood, these community bonds would even meet with very high domestic and foreign demand. Because these bonds would probably be every investor’s dream, as they would represent a lucrative mix of relatively high coupons and a good credit rating.
Solidarity does not need community bonds
According to the Federal Government’s assessment, a common debt policy is not currently needed in Europe. This is not only rejected by the CDU / CSU politicians such as Markus Söder and Friedrich Merz, but above all by the SPD politician and Federal Finance Minister Olaf Scholz. Even the Portuguese economist and euro group leader Mario Centeno is currently advocating not only philosophizing about corona bonds, but also examining options. “We should examine how we can use existing instruments, but we should also be open to considering alternatives if the former prove to be inadequate,” according to the German Press Agency, Centeno told the EU finance ministers. Accordingly, Germany, Austria and the Netherlands prefer to finance the southern European countries with the help of the existing ESM rescue fund.
Pierre Bonnet / finazen.net
Image sources: Podvysotskiy Roman / Shutterstock.com