Three Approaches To Eurobonds
The green paper lists three broad approaches for common issuance of eurobonds based on the degree of substitution of national issuance (full or partial) and the nature of the underlying guarantee (joint and several or several).
- Full eurobonds with joint liability: This option suggests to fully replace the entire national issuance by eurobonds, each EU member being fully liable for the entire issuance. According to the European Commission "this would have strong potential positive effects on stability and integration. But at the same time, it would, by abolishing all market or interest rate pressure on Member States, pose a relatively high risk of moral hazard and it might need significant treaty changes."
- Partial eurobonds with joint liability: The second option would pool only a portion of borrowings, again guaranteed by all. This means EU member states would still partly issue national bonds to cover the share of their debts beyond a certain percentage of GDP not covered by eurobonds. The Commission does not state a specific volume or share of financing needs that would be covered by national bonds at the one hand and eurobonds on the other. However, the proposal is similar to that of the German Council of Economic Experts that proposed a European collective redemption fund, which would mutualize the debt in the eurozone above 60%, combined with a bold debt reduction scheme for those countries, which are not on life support from the European Financial Stability Facility. This option is expected to require an amendment of the TFEU treaty.
- Partial eurobonds without joint guarantees: According to the third option that is similar to the blue bond proposal, eurobonds would again cover only parts of the debt (like option 2) but without joint guarantees. This could impose strict entry conditions for a smaller group of countries to pool some debt and allow for the removal of countries that do not meet their fiscal obligations. Due to "a mechanism to redistribute some of the funding advantages ... between the higher- and lower-rated" governments, this option aims to minimize the risk of moral hazard for the conduct of economic and fiscal policies. Unlike the first two approaches, this would involve "several but not joint" government guarantees and could therefore be implemented relatively quickly without having to change EU treaties.
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