A Realistic Alternative to Coronabonds
Issuing euro bonds during the Covid-19 crisis would be too difficult. A joint debt reduction fund is less radical, and it could be done.
What comes after?
Photo: Bloomberg
The Covid-19 epidemic has reopened old wounds in the euro zone. A group of countries, led by Spain and Italy, is asking for some form of debt mutualization as a show of European unity. Others, including Germany, are opposed to the idea, since they fear so-called “euro bonds” would be too difficult to set up in a crisis.
Germany has a point: The legal, practical and political hurdles to issuing joint and several liabilities right now are immense. However, there’s a risk that countries with fragile public finances will emerge from this crisis with too much debt to manage. It would make sense, therefore, for the euro zone to commit to a more limited path of debt mutualization than the one promised by euro bonds — or coronabonds as they’re now referred to.