Global cooperation is of paramount importance at a time when the world is united against a common enemy, the novel coronavirus. As a coalition of nations, the European Union is uniquely positioned to facilitate inter-nation support. Last month, a newly coined term, “coronabonds,” entered the scene to describe the concept of European nations pooling their collective debt in order to spread financial risk more equitably across the continent. Countries like Germany and the Netherlands would back this securitization plan as guarantors, making it easier for nations like Italy and Spain to acquire low-interest bonds.
Such a program could make a huge difference for companies hit hard by the coronavirus crisis. Italian Prime Minister Guiseppe Conte insisted over the weekend that coronabonds would not be about absolving Italy’s past debt burdens, but instead show the 19-nation currency bloc can commit to solving problems together. Businesses could also use a lifeline: Italy’s northern region, home to 40 percent of the country’s total industrial capacity, was one of the first industrial areas in Europe to be hit hard by this crisis.
Financial cooperation when it comes to taking on debt is not foreign to Europe, but the very idea of coronabonds faces backlash within some northern European countries. One fear is that co-signed debt would roll over into post-pandemic times. Residents of the Netherlands in particular are reportedly quite staunch in their position. Polling data suggests that many Germans are also wary of any aggressive bond programs.
French President Emmanuel Macron has been a champion of coronabonds, not only because of France’s current needs, but for the long-term future of the EU. Addressing the arguments southern European populists have long made about various EU policies and northern European countries, Macron said the following during an interview with the Financial Times:
“’They’re in favor of Europe when it means exporting to you the goods they produce. They’re for Europe when it means having your labor come over and produce the car parts we no longer make at home. But they’re not for Europe when it means sharing the burden.’”
On that point, Lucas Guttenberg, deputy director of the Jacques Delors Centre think tank in Berlin, recently told New York Magazine, “If some countries come out of this [pandemic] much stronger than others, that is going to politically undermine the European project as a whole.” Countries like Germany are already faring better than southern European counterparts like Italy, partly due to preexisting infrastructure, and will likely recover more quickly because of their wealth.
Ahead of further discussions about coronabonds, the EU’s finance ministers agreed on Thursday to a $590 billion package to support member state businesses and citizens during this recession. A day later, despite resistance from northern countries, the European Parliament passed a ”recovery bond” proposal by a significant majority. While the resolution isn’t binding, it’s a good sign that EU budget decisions will be cooperative with southern European needs.
“Recovery funds,” inspired by coronabonds, could be the topic of discussion during the Eurogroup’s follow-up meeting on April 23. These bonds aren’t exactly like coronabonds — instead of focusing on debt, they will support future investment like building sustainable and digital infrastructure.
After a rocky March, especially as the EU failed to support Italy at the beginning of the outbreak, European unity may be seeing a comeback. During a debate in the European Parliament on Thursday, EU Commissioner President Ursula von der Leyen said despite missteps and complacency early on, “Europe has now become the world’s beating heart of solidarity.”
“This Union of ours will get us through,” she said.
Not everyone has been sanguine about how the leading European powers managed this crisis. The Guardian was particularly pointed in its criticism of the continent’s COVID-19 response in an April 19 op-ed:
“Throughout, there has been a lack of co-ordination: Countries imposed their own restrictions, imposed their own border controls, and banned the export of much-needed medical supplies. Italy received speedier help from China than from its EU partners, and, not surprisingly, that has left a sour taste.”
Whether coronabonds or recovery bonds are on the table at this point, economists point to the fact that these bonds don’t need to cost wealthy countries much, if designed well. Further, they could actually benefit the entire EU. However, some observers recommend that the EU should take a larger and more federalist step into sharing the debt burden this pandemic will impose on the region.
France’s finance minister, Bruno Le Maire, has gone on the record saying the longstanding divisions within the EU, which involve dynamics between the north and the south as well as richer and poorer countries, needs to be cast aside. It will up to the wealthier nations, he said, to assist their less well-off neighbors that have been hit hard by the COVID-19 pandemic.
Outside of Europe, some leaders who were involved with rebuilding the global economy after the 2008-2009 global financial crisis have suggested bigger and bolder action is necessary.
During the 2008 recession in the United States, Neel Kashkari, then U.S. Assistant Secretary of the Treasury, supervised the bailout of banks and car companies. When speaking with NPR’s Planet Money last month, his advice for a swift economic recovery after the coronavirus pandemic was: Don’t be penny wise and pound foolish. Giving generously during a crisis pays off; being frugal leads to a long and arduous recovery.
A united EU, especially one that has learned from its early coronavirus mistakes, may just err on the side of generosity this time around.
Image credit: ML Watts/Wiki Commons