During the European debt crisis in 2011 and 2012, France and Italy were already a big supporter of eurobonds. The concept of eurobonds is that the government debt of all member states is financed jointly. This means that weaker member states also have access to the capital market, even in times of crisis like today.
Financial suicide
For stronger member states the cost of funding increases when weaker member states are able to leverage on their creditworthiness, which takes away an important incentive for sound fiscal policies. In the past, Germany and the Netherlands did not want to participate in the financing of the eurobond. To guarantee each other's financial behaviour, equals economic-financial suicide', says chief economist Edin Mujagic of OHV Asset Management. However, the outbreak of the coronavirus seems to have changed the situation. Chancellor Angela Merkel said during a video conference with the European government leaders last Thursday that she would not mind if the German Minister of Finance explores the idea of the eurobond with his colleagues.
A situation of war
According to Mary Pieterse-Bloem, Professor of Financial Markets at Erasmus School of Economics and Global Head Fixed Income at the Global Investment Center of the Private Bank of ABN AMRO, it is now irrelevant whether eurobonds will eliminate any disciplinary effect of national bond markets. Politicians and policymakers are currently making the comparison with a war situation, and in the event of war you try to collect as much money as possible. Once the war is over, you start thinking about how you can reorganise the financial landscape. A lot of money is needed to fight the virus, not only from a medical point of view, but also to limit economic damage,' says Pieterse-Bloem.
Het Financieele Dagblad, 20 March 2020
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The article from Het Financieele Dagblad can be downloaded above, 20 March 2020 (in Dutch).