Wednesday 13 December 2017

Rehn puts eurobonds initiative back on the EU's table

bond markets

Donal O'Donovan

THE possibility of common eurobonds enabling governments -- including Ireland -- to access cheaper borrowing was back on the table last night, just days after France and Germany said they were against the idea.

Last night it emerged that EU Commissioner Olli Rehn was considering preparing legislation to pave the way for eurobonds to be brought forward when he presents the results of a study examining the issue to lawmakers.

The possibility that countries using the euro could borrow collectively in the markets has been widely discussed by analysts and economists since the start of the debt crisis, and is backed by a number of political leaders.

The latest suggestion from Mr Rehn goes further than any senior leader has before in pressing forward the idea for common eurobonds since the start of the crisis.

It appears to put him, and the commission, on a collision course with France and Germany.

The news comes in a written response from Mr Rehn to a question from the European parliament.

In his response, Mr Rehn said the findings of a study commissioned in June could be accompanied by legislative proposals when it was presented to law makers in Brussels. "These euro securities would aim to strengthen fiscal discipline and increase stability in the euro area through markets."

Richer countries, including France and Germany, object to the plan, in large part because it would cut funding costs for others but raise the cost of borrowing for top-rated AAA countries.

Many analysts believe that if countries in the euro either borrow as a single entity or guarantee each other's debt it would end the debt crisis gripping Europe, and they think rich countries should see that as a price worth paying.

In research published yesterday, US banking giant Citigroup said it believed common bonds might become a reality down the line -- despite resistance from France and Germany. It said common debt would come as part of a wider process of integration.

"E-bonds might become a reality at some stage, but probably only in a monetary union operating under much stronger fiscal integration, including a substantial reduction of sovereignty of the member countries," Citi said.

A spokesman for Mr Rehn told the Irish Independent that there was no timetable for the mooted legislation.

He said action on euro bonds would only come after progress on the so called "six-pack" of measures to reinforcing the European growth and stability pact.


The six-pack measures were agreed by member states last year, and set out rules giving euro member states a bigger say in overseeing each other's budgets. They had been due to be signed off in June.

However, ECB board member Juergen Stark said common euro bonds would create false incentives for countries.

"Euro bonds are being portrayed as the silver bullet to emerge from the crisis. But in actual fact it's curing the symptoms and not the cause," he told Germany's 'Handelsblatt'.

In its report, Citigroup said the alternative approach put forward by France and Germany this week was unlikely to end the current debt crisis. That approach called for greater discipline and tighter budget rules for countries. (Additional reporting Reuters)

Irish Independent

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