FES BRIEFING EUROBONDS AND EUROPEAN CITIZENSHIP Andrea Boitani and Roberto Tamborini April 2020 »This spring Europe will change« Pino Daniele, Questa primavera THE EMERGENCY The coronavirus pandemic will have a powerfully negative im­pact on the European Union’s economies. The exact scale of this impact will certainly depend on how long it lasts, together with the consequent restrictions on productive activities and mobility that the various European countries are progressively adopting(and which demonstrate, by the by, how little they have learned from the experience of the countries affected first). But the economic consequences of coronavirus will also depend on the scale and promptness of the action taken to support economies. We have weeks, not months. It is crucial that a decision be made by Easter. The US government has approved federal action worth 2000 billion dollars in addition to an injection of unlimited liquidity by the FED. In Europe, after a hesitant start, the ECB has launched a Pandemic Emergency Purchase Programme (PEPP), initially limited to 750 billion euros in 2020 and then made potentially unlimited, declaring that purchases will be »necessary and proportionate« to the purpose of achieving the»mandate’s goals«. The ECB also temporarily loosened certain bank supervisory regulations in order to reduce the potential credit crunch. In public spending terms, on the other hand, the Commission has only been able to suspend the Sta­bility Pact – that is, the rules that limit member states’ deficits and public debt, particularly those of the euro zone – and to consider action in the amount of 37 billion euros designed to supply liquidity to small businesses and the health sector. This is clearly an entirely insufficient sum even for the emergency alone, which encompasses not only health but also the in­comes of millions of self-employed people, those without fixed contracts and small and micro businesses – among others – which have been brought to a sudden stop as a result of the pandemic. WHAT WE DON’T WANT To overcome these very narrow restrictions from multiple sides a more powerful tool has been proposed to protect the Eu­ropean Union – or at least the euro zone – to be used on an even larger scale than in the 2008–2009 and 2011–2012 cri­ses. Some commentators have argued for the need to resort to Eurobonds or Coronabonds, European bonds to be guaran­teed by the Union’s new»fiscal capacity«. We believe that this is the right path. But there have been many objections, above all from Northern European countries, which may slow down or even block the adoption of this solution in the necessarily brief time frame required by the health and economic crisis. Without going into the rights and wrongs of the political le­gitimacy and ethics of these objections, we believe that they are due to an underestimation of the scale and costs of the pandemic and an overestimation of nations’ fiscal capacity to deal with it. The upshot would be an acute moral hazard that risks rebounding on their own citizens, not to mention those of Europe as a whole, to the extent that any country that will not be able to tackle the health and economic crisis with all possible means will constitute a serious threat both to itself and to others. To overcome these objections we will attempt here to outline a Eurobond issue proposal of a scale capable of effectively taking on the health and economic crisis in all countries and initiating a recovery, while at the same time creating the safe asset that Europe and its financial system so desperately need. It is worth clarifying right away what the Eurobonds we are suggesting are not and what they will not do. 1