José Manuel Barroso, president of the European Commission, announced last week that the European Union’s executive body would soon release a report on the issuance of eurobonds. Joint sovereign bonds for the nations of the eurozone could help stem Europe’s escalating debt crises. It would provide funding for countries that have been cut off from the market and virtually guarantee the solvency of countries at risk, including Italy and Spain.
The announcement seems an attempt on the part of the commission to direct decisions away from individual states toward the political process of the EU. As the crisis has developed, the central forces have been Germany and France, Europe’s two largest economies. Although their leadership role allows decisions to be made quickly, it has also generated a sense of disorder as there has not been a clear understanding as to who is ultimately responsible. Equally, the EU has failed to provide a clear unified voice during the crisis, exacerbating market uncertainty.
While political decisions that relate to the whole of the union should undoubtedly have the consent of those they affect, Germany is in a position of power. As the strongest economy in the eurozone, the sentiment of the government in Berlin will decide whether there is or isn’t a eurobond.
A recent German supreme court decision ruled that although the bailout measures undertaken by the country to avert a sovereign default in Greece, Ireland and Spain were lawful, further action that would impact Germany fiscally needs the approval of the federal parliament before it can be implemented.
The ruling not only frustrates the pace of future resolutions; it also reduces the probability of there being an issuance of eurobonds in the near future. Germany has been a reluctant paymaster of this crisis and it believes that any issuance before reforms have been enacted will diminish the incentive to restructure.
As such, the issuance of eurobonds will likely be a question for the future. If the euro manages to come out of current troubles unschated, with countries ready to accept the reforms needed in order to bring the economies of the European Union into balance, eurobonds may well be one of the expressions of European integration.