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DNB/IMF Workshop 13-14 October 2011
Can Eurobonds be an Effective
Economic Instrument in the Euro
Area?
Fabian Amtenbrink (Erasmus University Rotterdam)
Jakob de Haan (DNB & University of Groningen)
[email protected]
[email protected]
Structure of the paper and this
presentation
• The flawed Maastricht system of economic
governance in EMU…
• … and the limited effect of the ‘six-pack’
• Can Eurobonds become a more effective
economic instrument in the euro area?
• What are the legal hurdles for the introduction of
Eurobonds?
• Some preliminary conclusions
Paper and presentation reflect
Work in Progress!
The flawed Maastricht system of
economic governance in EMU (1)
• Regulatory gap between economic policy
coordination and single monetary policy in the
euro area
• Regulatory gap between multilateral surveillance
and excessive deficit procedure
• Neither primary Union law nor Stability and
Growth Pact offer effective instruments to enforce
compliance with BEPGs and
Stability/Convergence Programs
The flawed Maastricht system of
economic governance in EMU (2)
• Decision-making is political process
• Excessive deficit procedure is hardly enforceable
• Response to euro
area sovereign debt
crisis has moreover
resulted in a shift in
paradigm
The recent reform (the six-pack)
will not fundamentally change the equation
• Reform package does not constitute the ‘fundamental shift
in economic governance’ announced by European Council
• Most notable change is new focus on macroeconomic
imbalances, including sanction regime
• New sanction regime for the multilateral surveillance &
excessive deficit procedure cannot repair birth defects in
Article 121 and 126 TFEU
• Last-minute political bargaining has partly weakened
innovation of reversed voting in multilateral surveillance
procedure
What way forward in economic
governance in the euro area?
• Fundamental reforms will have to satisfy two
basic conditions:
– Effectiveness: system ensures fiscal discipline and rule
out speculation against individual countries
– Feasibility: extent to which a reform implies a further
(undesired) transfer of policy and decision-making
power from the national to the supranational level
• Could a European system of debt financing be an
effective and feasible way forward?
Introducing Blue Bonds and Red Bonds –
the Delpla and von Weizsäcker Proposal
• Delpla and von Weizsäcker (2010; 2011): a system of Blue and
Red Eurobonds
• Sovereign debt up to 60% theshold covered by European
bonds jontly-and-several guaranteed by the participating
Member States (blue bonds)
• Independent new Stability Council charged with allocating blue
bonds
• Member States are allowed to issue own debt instruments
beyond the 60% threshold (red bonds with junior status)
• No EU bail-out for red bonds!
Introducing Eurobonds next to national
bonds - a good idea?
• Introduction of system of EU guaranteed bonds
next to national debt bonds creates perverse
incentives on parts of Member States
• How credible is a no-bail-out clause for red bonds
in the light of past experience with current
system?
• Market speculation against individual countries
remains a possibility as countries are still allowed
to issue own debt instruments (rescue
mechanisms remain thus necessary)
Compatibility of Eurobonds with (existing)
Union law
• What legal basis for the introduction of a
Eurobond system?
– Articles 121/126 TFEU
– Article 136(3) TFEU
– A new provision in primary Union law?
• Would the introduction of Eurobonds be in breach
of primary Union law?
– General principle of debt financing at market conditions
– Articles 123/124 TFEU
– Article 125 TFEU = no-bail-out clause
Compatibility of Eurobonds with national
constitutional law
• Constitutional objections arising from the loss of
budgetary power of national parliaments
– E.g. decision by German Federal Constitutional Court on German
financial aid to Greece and participation in EFSF
– References by several highest courts in other Member States to
‘constitutional identity’
• Constitutional objections arising from the
existence of constitutional debt ceilings
– Joint or joint-and-several liability = debt ?
– How to take deal with risks arising from liability?
Some preliminary conclusions
• Economic governance in EMU has failed to attain the
basic economic objectives of EU
• Fundamental reorientation called for!
• Proposal of Blue and Red Bonds does not solve
fundamental problems in the sphere of economic
governance
• Countries may actually regain
sovereignty from financial markets!
THANK YOU !