Coronavirus and the politics of a common fiscal instrument

Coronavirus means many European Union countries will soon face major increases in their sovereign debt burdens, exacerbated by the sudden collapse of economic activity. What should the European Union do to address these debt problems?

 
The economic challenge arising from the coronavirus crisis has multiple facets, including a supply-side shock, huge drops in demand and liquidity issues. Debt is a major challenge. Many European Union countries will soon face big increases in their nominal sovereign debt burdens, exacerbated by the sudden collapse of economic growth. What can the European Union do to address these debt problems?

‘Corona bonds’ have been suggested by Italy’s prime minister as a possible policy solution. This has been supported by seven German economists writing in Germany’s mainstream conservative newspaper. Missing from these discussions is an understanding of the politics that could block their implementation, and how to overcome any objections. We discuss the design of such bonds and also a related proposal for a European Stability Mechanism (ESM) line of credit, in order to address some of the understandable objections of those with the power to make decisions, especially in the European North.

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Πηγή: bruegel.org