The forgotten history of European Community debt

Sebastian Horn, Josefin Meyer, Christoph Trebesch show that 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.


On April 10, Eurogroup finance ministers agreed on an emergency rescue package aimed at responding to the coronavirus crisis. To the disappointment of many economists and commentators, the rescue package did not include the introduction of so-called “Coronabonds” – a jointly issued debt underwritten by all eurozone member-states. Instead, it included the Eurozone’s European Stability Mechanism (ESM). This sparked a backlash in Italy as the ESM is associated with tough conditionality imposed on the countries that have accessed it: Greece, Portugal, Spain, Cyprus and Ireland. In response, Italy’s prime minister said that Italy had no intention of applying for help from the ESM, which was one reason for the renewed rise in Italian bond yields.

However, the rescue package also entailed a recovery plan, the financing of which has yet to be determined. European Commission Vice President Valdis Dombrovskis said this week that the European Union could finance a recovery fund worth up to 1.5 trillion euros with bonds guaranteed by member states highlighting that the debate over common bonds is unlikely to go away anytime soon.


Now, three German economists from the Kiel Institute for the World Economy and LMU Munich have entered the debate and showed that there is a long history of EU community bonds. Among the lessons to be learned from this history is that these institutional arrangements were often set up flexibly and quickly, effectively debunking the argument that it would take years to issue Coronabonds. The full article can be read – here.


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