Setho ka Gaon

The 2008-2012 crisis that the European Union suffered due to the disastrous balance of payment issues and faulty mechanisms to handle the economy led the European Union in a very long and severe debt crisis. Another main cause of this debt crisis was the lack of common eurozone institutions to efficiently assimilate shocks.

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The coronavirus, which emerged from a small city of China affected and is still affecting the whole world and devastating thousands of lives each day while disrupting the economy in every corner of the world and likewise pushed the EU economy way further back. During March and April, countries like Italy, UK, US, and Spain almost crested the coronavirus cases which ruined their economies, with no cash flow, no direct revenue streams, and heavy expenditure on the medicinal industry, on its people, these countries were looking for ways of financing. While countries like the US which have better contacts with the world bank, they were able to arrange funds for its functioning, and with the UK being out of the European Union, they were finding it hard to fight this crisis.

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The only solution that the economists could come up with was the Corona Bonds.

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Corona bonds are basically risk-sharing instruments through which the risk or debt can spread over the 27 countries of the European Union which will eventually help the less stable countries of Italy, Spain, and others in revitalizing their economy which are the worst-hit countries in this pandemic.

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Earlier each state of the EU had a different interest rate for the national debt which they had to pay accordingly. Countries like Germany and Austria with a high credit rating could get national debt easily by the European Investment Bank and could pay off at a very low interest and on the other hand countries like Spain and Italy had to pay a large interest as contrasted with other states due to a moderate credit rating. These corona bonds would make the debt mutual and the interest rate equal for the states for a better revival of the European economy. A lot of political dispute has followed over bonds with countries like France, Italy, Spain the union’s largest economies along with six other countries urging these bonds to be issued they are being strongly opposed by the fiscally stable ones also known as “The Frugal Four”: Germany, The Netherlands, Finland, and Austria.

 

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These kinds of Eurobonds were also considered during the 2008-2012 debt crisis but did not work because the “Frugal Four” did not agree. Italian Prime Minister Giuseppe Conte necessitated these bonds in March when the situation started getting worse in Italy, he said- “ Europe should respond to this extraordinary crisis and do whatever it takes to support the economies.”

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His idea was strengthened by nine countries of the European Union discussed above and they wrote to the European Union collectively demanding the revision of these Eurobonds now “Corona Bonds”. The main demand of these countries is for a common debt instrument to raise funds and initiate cash flow in their economies which are now being disrupted by the coronavirus. Germany and the Netherlands are the fervent opponents to the idea of “Corona Bonds”.

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Another reason for their discontent with the theory of these bonds is that issuance of these bonds would breach an establishing principle of The European Union that no country will be held accountable for the debts of other countries. This postulate convinced Germany in the first place to adopt the Euro and breaching this principle would certainly do more bad to the union than it would do well.

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Meanwhile, the direct uneasiness from the Frugal Four has forced the European Union to consider an alternative ㇐ that is, the European Central Bank which has notified to launch an extensive bond purchase totaling 750 Billion Euros to give a spark to the economy. This would help the economy but will take a lot of time to completely revive it.

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In the end, I conclude by saying that the crisis this time is around 4.6 times the 2008-2012 debt crisis, forcing the European Union to find a resolution in these dark times. I think that these bonds should be issued as they will represent countries standing with each other and it will motivate other union countries to represent the same solidarity also. If countries cannot stand by each other in these times of crisis then we don't know what the future holds for us, this pandemic is just the beginning of the series of unfortunate events that may happen in the eventuality in which it will be important for nations to stand concurrently.