Brussels, 21/11/2011 (Agence Europe) - The president of the European Commission, José Manuel Durão Barroso, says that it will be possible to introduce eurobonds to pool some of euro nations' debt as soon as enough budget discipline and economic convergence has been achieved. He was speaking on Monday 21 November after meeting the Greek prime minister, Lucas Papademos (see separate article). Barroso said that he thought when there is a sufficient level of budget discipline and economic convergence it would make sense to introduce a kind of eurobond. One of the options available for such “Stability Bonds” will be unveiled by the Commission on Wednesday, with draft legislation to increase budget discipline in the eurozone. He said that the problems faced by a number of euro countries today are due to overspending in the past by governments who often claimed to be good money managers.
Three eurobond options have been doing the rounds in the media, suggesting that the Commission may reveal them in a Green Paper. The first option amounts to replacing national bonds with eurobonds, the risk being borne by all the member states involved, which would pool the risk. The second option would pool some eurozone countries' debt, with the remainder (60% of GDP, say) being managed by the country in question. Both options would take time to introduce because they would require interinstitutional changes. The third option would replace some state bonds with eurobonds with limited guarantees. This would be easier to introduce because the EU treaty would not need to be changed, but it would be less likely to reduce the interest rates demanded by markets for the bonds of vulnerable countries like Spain and Italy.
Opposition from Germany. Supporters of eurobonds as part of the answer to the debt crisis clash with Germany (see EUROPE 10497). On Monday 21 November, a spokesperson for German Chancellor Angela Merkel said that the German government shared the widespread idea that eurobonds are not a miracle solution at the moment. Germany fears that pooling eurzone debt would increase the cost of rolling over German debt and the creation of eurobonds might lead to lesser effort by struggling countries to cut public spending and introduce austerity measures.
The idea of eurobonds was defended in 2010 by the chair of the Eurogroup, Jean-Claude Juncker, and the former Italian finance minister, Giulio Tremonti. France is not opposed in principle to pooling debt, but feels it is not feasible at the moment and should be seen as the end of a process of reform.
On Wednesday, the Commission will unveil two draft regulations based on Article 136 of the Treaty on the Functioning of the EU to allow the eurozone to boost budget and economic surveillance. The first regulation will boost surveillance of the most fragile countries whereby countries requesting financial aid will be subject to intense monitoring during and after the drafting of their structural adjustment programme. The second regulation will boost the surveillance of eurozone countries against which action is being taken as a result of their excess budget deficits. The regulation will introduce a several-step process for monitoring budget policies and the Commission and Council will have the right to scrutinise the drawing up of national budgets and can demand that changes be made to the budget if it is found that the measures will fail to achieve the targets. The Commission will also unveil a report on Wednesday on foreign representation of the eurozone. (MB/transl.fl)