Commission publishes the first report on the issuance of a Eurobond

With a brief report, an Expert Group formed by the EU Commission and mandated to study the issue of “a debt redemption fund and eurobills”, undermined the prospect of a Eurobond issuance, by refusing to formulate a policy proposal. This is the story of the long time debated subject of the issuance of common and mutualized sovereign debt paper by Eurozone, namely the famous Eurobond affair. The denial of the ‘experts’ to formulate a policy proposal, means that the new concession of economic sovereignty by the Eurozone member states to Brussels – in the context of the new economic governance – will remain without a counterbalance in the sphere of mutualisation of financial obligations. The ‘experts’ say that “Given the very limited experience with the EU’s reformed economic governance it may be considered prudent to first collect evidence on the efficiency of that governance before any decisions on schemes of joint issuance are taken”. Concerning the legal issues, the Expert Group’s report concludes that “without EU Treaty amendments, joint issuance schemes could be established only in a pro rata form, and – at least for the debt redemption fund/pact – only through a purely intergovernmental construction, which would raise democratic accountability issues”. Ignoring the ‘acquis communautaire’ Yet in the case of the recently struck agreement between the Parliament, the Council and the Commission over the Single Resolution Fund, the three most important EU bodies delegated the governance of this Fund to an Intergovernmental Agreement. This Agreement is quite similar with the one the ‘experts’ say is needed for the issuance of the first Eurobond or Eurobill, but they refuse to propose it, because it “would raise democratic accountability issues”. What kind of wise experts are those, having not noticed that the most important new European institution after the creation of Eurozone, namely the European Banking Union, is based on such an Intergovernmental Agreement? Presumably they haven’t noticed that the European Parliament has been questioning the democratic accountability of this Intergovernmental Agreement, on the grounds that it constitutes a creation completely outside the EU standard practices and functioning. Yet the legislature took the right precautionary measures to secure an acceptable degree of democratic accountability for the IA. The MEPs finally accepted this new institutional creation outside the EU standards, just to pave the way for the trilateral agreement (Parliament, Commission, Council) with which the EU is about to accomplish its major new project, namely the European Banking Union. Stubborn denial Incidentally, the Single Resolution Fund will be endowed with €55 billion, a huge capital in every respect. Notwithstanding its huge volume, it will be run by an Intergovernmental Agreement, exactly like the one the ‘experts’ don’t seem to consider democratic enough for their own standards. The SRF will take care of the cost of winding down a Eurozone bank, after the lender is examined by the ECB and found as being beyond limit of repair. Actually after some years, the national segments of the SRF will merge into one. This truly single SRF will mutually undertake the obligations stemming from eventual bank resolutions, irrespective of the country in which the failing bank is conducting its main business. Despite all this experience gained during the past twelve months by the three EU most important bodies in achieving this trilateral Agreement (Parliament, Commission, Council) for the creation of the Banking Union, the ‘experts’ refused to take stock of it. The Commission observes that “The report does not formulate policy proposals or recommendations, nor endorse explicitly or implicitly either of the two ideas”. The two ideas referred to here are the EU Treaty amendment and the intergovernmental construction. Either of them can serve as a legal base for the issuance of Eurobonds and Eurobills. It’s always Germany It is obvious that in this way the Commission shows its dismay over the refusal of the ‘experts’, to recommend either idea as a legal base for the issuance of Eurobonds and Eurobills. It must be noted though, that major economic commentators have repeatedly insisted that the only way for Eurozone to become a truly monetary union, catering for the needs of all its members, there has to be a common issuance of government debt. Of course Germany has been vehemently opposing the mutualisation of Eurozone’s sovereign debt. Presumably, this ‘expert group’ report on a common debt redemption fund and eurobills, has succumbed to the insistence of its German members who must have denied any prospect for the issuance of Eurobonds or Eurobills. In any case, this is just the first act of the story around the issue by Eurozone of a common Eurobond. The report published yesterday by those ‘experts’ is only the beginning.