"Coronabond” Spat Splits Europe

"Coronabond” Spat Splits Europe

almost 4 years ago2 mins

The European Union’s (EU's) top executive on Thursday reiterated the bloc’s opposition to “coronabonds” as a response to virus-induced recession – but infighting could tear Europe apart 🙀

What does this mean?

The EU faces a bigger existential threat than Brexit as it battles the pandemic’s economic effects. Half the 19 euro-using “eurozone” countries – led by France, Spain, and Italy – are calling for the creation of a temporary $1 trillion-plus fund that could issue cheaper, shared bonds and raise cash for those most in need.

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But the rest – led by Germany and the Netherlands – are loath to risk further economic integration with their already more heavily indebted neighbors. They point instead to an existing $440 billion available for individual countries to borrow. Problem is, the stringent conditions attached – such as future budget restrictions – are political poison back home, particularly in Italy 🤢

Hit particularly hard by the virus, Italy is already preparing to increase its national stimulus package – but even that may not be enough…

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Why should I care?

The EU was criticized for its slow initial economic response to the coronavirus – and more action may soon be needed. By some estimates, existing measures will have to be doubled just to help individuals and businesses survive the coming months.

The European Central Bank has already ramped up its bond-buying program
The European Central Bank has already ramped up its bond-buying program

Ten years ago, a eurozone debt crisis resulted in the creation of the $440 billion fund – but also humiliating bailouts for countries like Greece. Unless the EU finds an adequate way to meet its members’ wants and needs this time around – by softening the strings and stigma attached to loans, for example – an imminent Italexit (at least) looks likely.

Regardless of the solution, one thing is certain: post-coronavirus, European economies, like the United States – which, 230 years ago, resolved similar arguments over joint debts with the creation of the US Treasury – will face the challenge of getting back to growth while dealing with sky-high debts… 🙄

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