Corona Bonds have nothing to do with solidarity

The demand for Corona Bonds is nothing new. During the Euro rescue, they were demanded under the name Euro Bonds. Yet, contrary to what is always claimed, neither Euro nor Corona Bonds have anything to do with solidarity. A guest commentary by Frank Schäffler.

In the Süddeutsche Zeitung, numerous artists and cultural figures have published an initiative calling for so-called Corona Bonds to overcome the burdens of the Corona crisis in Europe. They write: “The countries of the European Union must – also in Germany’s own interest – act with maximum economic solidarity and provide mutual security. With all available means, using the strength of all individual national economies, to establish common stability. The situation demands concrete, immediate solidarity, in other words: establishing Corona Bonds, joint bonds issued by the Eurozone states.”

Corona Bonds are actually nothing new in political discussion. When the Euro debt crisis was still the focus, the same people demanded Euro Bonds to solve the debt crisis. Now the child is given a new name, but the content remains the same. Ultimately, it is about collective liability for jointly incurred debts. Yes, it is true that countries like Italy and others have a debt problem. And yes, it is true that these countries are therefore particularly burdened in the Corona crisis. But currently, Italy and the other Eurozone states can sufficiently finance themselves on the financial markets. This is not their own merit, but due to the intervention of the ECB. It has expanded its bond-buying programme and thereby secured Italy’s favourable refinancing. Today, the spread on Italian ten-year government bonds compared to German papers is below the 2018/2019 level during the coalition of the Five Star Movement with the Lega.

This also applies to the other Eurozone states. In 2008, Eurozone states still had to pay an average of 4.59 per cent for debt; in 2018, it was only 2.11 per cent. Money scarcity does not seem to be the problem in Italy, as the government has provided 500 million euros for the nationalisation of the ailing airline Alitalia. Although I am no friend of the ESM, should the Euro as a whole be endangered, ESM loans would be available to individual states. While the Corona pandemic is not a home-grown issue, the economic and fiscal basis of a country upon which the current pandemic hits certainly is. Therefore, the conditionalities of an ESM loan also apply. Money in exchange for a programme. Or rather, there can only be funds from the common pot if the recipient country makes changes to its budgetary and debt policies.

Collectivisation of public debt

Corona Bonds would abandon the foundations of the ESM and extend it not only to the Eurozone states, but to all EU states. That the EU Commission supports this is clear. It has always wanted to transfer the ESM from the intergovernmental sphere into EU law to ultimately gain more power and influence. The Commission has used every crisis to get closer to this goal. However, none of this has anything to do with solidarity. Corona or Euro Bonds are the opposite of solidarity. They collectivise public debt in Europe. Solidarity consists of voluntary actions among people out of compassion or charity. The giver expects no consideration for their voluntary action, but at most a thank you.

Among states, solidarity is not a fitting term anyway, because states act based on interests. This is not unusual among sovereign states, as the respective states have no or only limited influence on the income and expenditure side of other states.

Maintaining fundamental freedoms

But what can the EU do to help individual states? Three things: Firstly, it can provide assistance in the event of natural disasters and extraordinary events (Art. 122 para. 2 TFEU). The instruments and funds in the EU budget are available for this. Secondly, it must champion the maintenance of the European single market. Only if the flow of goods takes place across borders again as quickly as possible can the economic consequences of the Corona crisis be mitigated. Border controls within the EU are therefore poison for economic recovery in Europe. Hence, the EU Commission must push with all its might to ensure that cross-border trade can take place unhindered as soon as possible. And thirdly: what applies to the single market must apply even more to world trade. The EU must become a pioneer for trade liberalisation in the world and lead by example. It must itself reduce tariffs and trade restrictions. If not mutually, then unilaterally. The Great Depression in the 1920s lasted well into the 1930s precisely because industrialised states, starting with America, withdrew and isolated themselves. We should not make this mistake again.

Frank Schäffler is a member of the German Bundestag (FDP). He is also the managing director of Prometheus – Das Freiheitsinstitut. The article originally appeared on Tichys Einblick.

Guest commentaries express the personal opinion of the author. They do not necessarily coincide with the position of the Paneuropa Movement Austria.

Featured image: c European Union 2018