Argument: The long term benefits of Eurobonds

The European Union should not only focus on the present but also try to find a permanent solution in resolving and preventing economic crisis. The solution that is implemented right now through the European Stability Mechanism is a temporary one and has no power in preventing further crisis. First of all, the failure of the European Union to agree on banks bailout is a good example. [1] As economic affairs commissioner Olli Rehn admitted the bailout negotiations have been "a long and difficult process" [2] because of the many institutions and ministers that have a say in making the decision. More than that, it sometimes takes weeks and even months until Germany and other leaders in the union can convince national parliaments to give money in order for us to be able to help those in need.

Issuing bonds as a union of countries will provide more control to the ECB that will be able to approve or deny a loan – one option would be that after a certain limit countries would have to borrow on their own. [3] This will prevent countries from borrowing and spending irrationally like Greece, Portugal, Spain and Italy did in the past. The unsustainable economic approach can be easily seen in the fact that public sector wages in Greece rose 50% between 1999 and 2007 - far faster than in most other Eurozone countries. [4] Clearly Greece could make the choice to go separately to the market to fund this kind of spending but it would be unlikely to do so.

[1] Spiegel, Peter, ‘EU fails to agree on bank bailout rules’, The Financial Times, 22 June 2013, http://www.ft.com/intl/cms/s/0/8bbfdf84-daeb-11e2-a237-00144feab7de.html#axzz2hG9t5YAS

[2] Fox, Benjamin, ‘Ministers finalise €10 billion Cyprus bailout’, euobserver.com, 13 April 2013, http://euobserver.com/economic/119782

[3] Plumer, Brad, ‘Can “Eurobonds” fix Europe?’, The Washington Post, 29 May 2012, http://www.washingtonpost.com/blogs/wonkblog/post/why-eurobonds-wont-be-enough-to-fix-europe/2012/05/29/gJQACjR1yU_blog.html

[4] BBC News, ‘Eurozone crisis explained’, 27 November 2012, http://www.bbc.co.uk/news/business-13798000

Candidate 1: "Integration cannot happen on the hoof. The euro crisis and the political and social distress in the European Union have created negative sentiments when talking about the Union. The European citizens do not want these kinds of measures and there is a general sentiment of euro skepticism. Countries like Germany are no longer interested in paying for Greek mistakes and Angela Merkel is strongly opposing the idea of Eurobonds, saying that Germany might leave the union. [1] Clearly this is not the time to be forcing through more integration against the will of the people.

More than that extremist parties are on the rise. An anti-Muslim, anti-immigration and anti-integration party, France’s National Front has come out top in a poll of how French people will vote European Union Parliament elections. [2] In contrary to the false connection between poor economy and extremism, it comes in hand the fact that the National Front reached the runoff in the 2002 French presidential elections. [3] In conclusion, people are not willing to invest more in the union but rather wanted to take a step back from integration even before the crisis.

[1] Cgh, ‘The Coming EU Summit Clash: Merkel Vows ‘No Euro Bonds as Long as I Live’, Spiegel Online, 27 June 2012, http://www.spiegel.de/international/europe/chancellor-merkel-vows-no-euro-bonds-as-long-as-she-lives-a-841163.html

[2] Mahony, Honor, ‘France’s National Front tops EU election survey’, euobserver.com, 9 October 2013, http://euobserver.com/political/121724

[3] Oakley, Robin, and Bitterman, Jim, ‘Le Pen upset causes major shock’, CNN World, 21 April 2002, http://edition.cnn.com/2002/WORLD/europe/04/21/france.election/?related"
Candidate 2: "Sometimes, a leap of faith is what needs to be taken in order to fix such big problems. First of all the willingness of the union to do more in helping countries that having difficulties will improve its image both in these countries and abroad because it will show the EU sticking to its core principles. Even if we agree that Eurobonds might be a risky idea, something needs to be done to fix the economy. We have clearly seen how bailouts do not work and are not providing a permanent solution. The Eurozone is likely to decide on a third bailout for Greece in November 2013 and little proof that this will make the situation better for the Greeks. [1] Furthermore, the temporary solution of bailouts is taken without the consent of the electorate so the problem of a democratic deficit exists in both cases. Acting now to end the crisis will mean a possible end to such sticking plasters being applied without democratic consent. The EU will then be able to concentrate on demonstrating the advantages of the solution it has taken.

[1] Strupczwski, Jan, ‘Decision on third Greek bailout set for November: officials’, Reuters, 5 September 2013, http://www.reuters.com/article/2013/09/05/us-eurozone-greece-idUSBRE9840NN20130905"
Candidate 3: "The problem with long-term regulations is not that they do not exist but rather the fact that they are not imposed. There is no need for further control and regulation when the European Union already has a mechanism that will prevent economic crisis if it is stuck to. The Maastricht Treaty clearly states that countries in the European Union shall not have a government deficit that exceeds 3% of the GDP and the government debt was limited to be no larger than 60% of the GDP. [1] These measures should be enough to prevent any country in the union to collapse. The major problem was that the Maastricht Treaty was not respected by the member states and little or no sanctions were imposed to ensure compliance. Even comparatively stable countries have deficits above 3%, France had a deficit of 4.8% in last year. [2] The simple solution would be keeping the regulation of the already existing treaty and sanction countries that exceed their deficits and not impose new rules.

[1] Euro economics, ‘Maastricht Treaty’, http://www.unc.edu/depts/europe/euroeconomics/Maastricht%20Treaty.php

[2] The World Factbook, ‘Budget surplus (+) or Deficit (-)’, cia.gov, 2013, https://www.cia.gov/library/publications/the-world-factbook/fields/2222.html"
Candidate 4: "Moral hazard is not going to happen in the European Union because alongside the benefits of the Eurobonds comes the control from the European Central Bank or other measures imposed by the rest of the members. This is already happening in the status quo, where countries are forced to impose austerity measures in order to receive bailout founds. [1] Under the model proposed where the ECB can control the lending ability of any country in the union, by allowing the loan or denying it at a certain limit. Countries will most certainly be held accountable if they fail to pay back their loans by not giving them access to further bond issuing. Eurobonds are not a tap governments can use for spending recklessly.

[1] Garofalo, Pat, ‘Greek Austerity, the Sequel’, U.S.News, 9 July 2013, http://www.usnews.com/opinion/blogs/pat-garofalo/2013/07/09/imf-forces-more-austerity-on-greece-in-return-for-bailout-loans"
Candidate 5: "There are some assumptions made in the construction of this argument. First of all, you can’t hide the risk from the economic community. There is no guarantee that when issuing Eurobonds, the interest rates will drop. This is happening for two main reasons.

Firstly, according to the proposition model, the bonds will still be issued at a national level, showing investors if the money is going to Spain, Italy or Germany, France. While these should in theory have the same interest rates will investors really buy Eurobonds where the money is destined for Greece if not getting much interest? Perception still matters to the markets; will Greece and Germany really suddenly be perceived in the same way.

Secondly, even if the European Union decides to borrow money as a whole, its image is not a good one. Everybody knows the major problems that the union is facing right now so it is possible that concerns about the stability of the Euro as a whole will mean Eurobonds drive interest rates up, not down. Greece was still downgraded after its first bailout from CCC to C by the Fitch Financial Service even if the money were backed up by the ECB, being backed by the whole zone did not change the local fundamentals. [1]

[1] AP/AFP, ‘Greek Credit Downgraded Even With Bailout’, Voice of America, 21 February 2012, http://www.voanews.com/content/greek-credit-downgraded-even-with-bailout-139975563/152377.html"
Candidate 6: "There is a common responsibility in the European Union for helping countries that are hit harder by economic crises than the others. If Eurobonds create winners and losers, the same thing can be said about the economic crisis. Germany was one of the winners and therefore has the duty to help the others. The Eurozone crisis has created a bigger demand for German bonds and lowered the interest rate they have to pay. Germany has such low interest rates because Spain, Italy and Greece are incapable of sustaining their debt, it is therefore a safe haven for people who want to buy government bonds. It is estimated that Germany gained 41 billion euros [1] in ‘profit’ from these lower interest rates as a result of the crisis and therefore has the ability and the moral duty to help countries that are worse-off. More than that, every prudent creditor has a profligate debtor. French and German banks could risk loosing a few hundred millions each if Greece defaults, the creditor accepted the risk when they lent the money. [2] We should remember that the core of the economic success of countries such as Germany has been the Euro helping to increase exports; these exports were what Greeks were buying with the credit they were getting from foreign banks.

[1] SPIEGEL/cro, ‘Profiteering: Crisis Has Saved Germany 40 Billion Euros’, Spiegel Online, 19 August 2013, http://www.spiegel.de/international/europe/germany-profiting-from-euro-crisis-through-low-interest-rates-a-917296.html

[2] Slater, Steve, and Laurent, Lionel, ‘Analysis: Greek debt shadow looms over European banks’, Reuters, 20 April 2011, http://www.reuters.com/article/2011/04/20/us-europe-banks-idUSTRE73J4BZ20110420"

The problem with long-term regulations is not that they do not exist but rather the fact that they are not imposed. There is no need for further control and regulation when the European Union already has a mechanism that will prevent economic crisis if it is stuck to. The Maastricht Treaty clearly states that countries in the European Union shall not have a government deficit that exceeds 3% of the GDP and the government debt was limited to be no larger than 60% of the GDP. [1] These measures should be enough to prevent any country in the union to collapse. The major problem was that the Maastricht Treaty was not respected by the member states and little or no sanctions were imposed to ensure compliance. Even comparatively stable countries have deficits above 3%, France had a deficit of 4.8% in last year. [2] The simple solution would be keeping the regulation of the already existing treaty and sanction countries that exceed their deficits and not impose new rules.

[1] Euro economics, ‘Maastricht Treaty’, http://www.unc.edu/depts/europe/euroeconomics/Maastricht%20Treaty.php

[2] The World Factbook, ‘Budget surplus (+) or Deficit (-)’, cia.gov, 2013, https://www.cia.gov/library/publications/the-world-factbook/fields/2222.html
