‘Coronabonds’ Could Bail Europe Out, Tie It Together

Like every other part of the world, Europe is facing an economic crisis, unleashed by a global pandemic. What’s unique in the region is how the crisis has led to a renewed push for a never-before-tried financial tool -- now aptly renamed “coronabonds.” While politically divisive, these pooled debt securities could help overcome one of the biggest hurdles faced by the European Union: how to drive more financial integration and risk-sharing across the continent.

Pre-coronavirus they were known as euro bonds, and they were something many EU leaders have argued for since the creation of the euro in 1999: a shared debt instrument to finance borrowing, where the money can be directed to the countries that need it most. National governments currently sell their own debt to fund projects and annual budgets, but do so at wildly varying costs. Germany can effectively be paid to borrow, due to its impeccable credit rating and tight spending rules, while Italy -- with its less-stellar credit rating -- has to pay a higher interest rate of at least a full percentage-point more. Though the idea has failed to garner sufficient support, a coronabond could “mutualize” risk among nations, possibly cutting borrowing costs.