Discussions at this national roundtable session got underway with the observation that the idea of introducing European public debt securities – or so-called Eurobonds – is not a new one: indeed, it dates back to 1993 when Jacques Delors proposed, albeit in embryonic form, the issuance of European bonds to finance investment in European Community infrastructure. After a long period silence, political debate on Eurobonds has resumed, progressively intensifying with the onset of the financial crisis of 2008 and, above all, under the shadow of the current phase of market instability linked to the European sovereign debt crisis.
It was acknowledged that the debate on the forms that Eurobonds could take is particularly complex and multifarious since there are many varied technical aspects to be considered on a legal and economic level in the design of such instruments. This complexity is compounded by the political implications and public acceptance concerns regarding a financial innovation that could potentially have far-reaching repercussions not just on the future of citizens of countries directly exposed to the sovereign debt crisis, but also of those from countries at this stage perceived as being on a more sound footing and safe from the instability affecting the financial markets.
The participants noted that international debate on Eurobonds tends to be polarized around two competing views, one of which maintains that these instruments would transfer the government debts of troubled eurozone states to those more virtuous, whilst the other sees Eurobonds as the only mechanism capable of stabilizing the single currency at this time of heightened turbulence, thereby enabling an orderly and progressive consolidation of sovereign debt and supporting the economic growth of the area.
This latter thesis seems to be meeting with increasing favor in political, economic and financial circles since, firstly, European economies are already heavily-integrated and interdependent, and, as the Greek situation has shown, a crisis of liquidity or solvency in one state can also have dramatic repercussions on the economies and banking systems of other eurozone countries. Secondly, the introduction of Eurobonds would allow the creation of a market that could compete in terms of size and liquidity levels with that of U.S. government securities, thus attracting an increasingly larger share of international savings flows and strengthening the role of the euro as a global reserve currency.
It was conceded, however, that obviously the feasibility of Eurobonds will not solely depend on the targets Europe sets for itself, but also on the design of the instruments, the choice of vehicles for their issue, and the type of assurances that would accompany their issue. In terms of the possible forms and vehicles being considered, these range from European bonds to finance investments in large infrastructure with mechanisms involving private investors where appropriate, to more ambitious proposals that envisage the issuance of Eurobonds by a European debt agency that would determine the percentage of national borrowing needs that such bonds may cover. In operational terms, this latter option could, for instance, take the form of an enlargement of the scope and mandate of the already existing European Financial Stability Facility, or the establishment of an ad-hoc fund capitalized with contributions, from the countries signed up to the scheme, of gold reserves and shares of companies that control the various national infrastructure networks.
The participants stressed, in conclusion, that putting in place the necessary assurances and introducing mechanisms that commit more exposed countries to reducing their debt continue to be crucial to the feasibility of a proposal that – given the opposition it has met with from various quarters of European public opinion – is more political than economic in nature. What is beyond doubt is the existence of a growing awareness that the fate of the euro as a single currency and of Europe as a political venture now seems bound up with the introduction of Eurobonds.