There is a lot of talk about coronabonds lately, but what does it mean? Because the impending financial recession will affect every country, some euro-countries are pleading for a joint bank account as response to the pandemic.
Every country in the euro has its own budget. Southern European countries like Italy and Spain have a higher dept, which means the interest they pay of over their dept is higher. While northern European countries like The Netherlands have a much lower debt. cornabonds would merge these debts and thus it would reduce the dept of countries like Italy and increase the dept of countries like the Netherlands. The euro-countries would have a common bank account at the European central bank.
The Italian dept was in 2018 134 percent of their GDP, which is very high. While the Dutch was only 52 percent. During the financial crash of 2008 and the following euro crisis, the Dutch and the Germans took austerity measures, whereas the Italians choose to borrow more money. Which highlights the different financial mentalities of northern and southern European countries.
Italian prime minister Gioseppe Conte pointed out that if Italy would take a financial hit, every country in the Euro would suffer as a consequence. For example, The Netherlands wouldn’t be able to export as much tulips and cheese to Italy as usual. Dutch minister of finance Wopke Hoeksta said that he is willing to pay billions of aid money to the Italians and other suffering countries in the Euro. However, northern Euro-countries make the case that coronabonds are not the proper response to this crisis.
After negotiations there has been a temporary compromise: there will be a fund of 540 billion euro available for euro-countries who want to get a loan. The money is only allowed to cover medical costs and has to be replayed ten years. The European stability mechanism was meant as a special fund in which euro-countries can get loans in order to save banks. The ESM was founded in 2012 to aid Greece during the Euro-crisis.