Meanwhile, a UK-based economist has warned any system of debt mutualisation along the lines of what Italy’s Prime Minister Giuseppe Conte, and France’s Finance Minister Bruno Le Maire, is pushing for would likely result in massive public spending in countries badly hit by the coronavirus pandemic in the belief that countries in the north would “pick up the tab”. Mr Henkel, who stepped down from the European Parliament last year, said he was gravely concerned at the pressure Chancellor Angela Merkel is facing, domestically and from other members of the EU27, to sanction some form of Eurobonds, nicknamed coronabonds. A 500 billion euros package of measures aimed at mitigating the impact of the pandemic was agreed last week following a marathon meeting of the bloc’s finance chiefs – but Mr Conte, whose country has been hit by COVID-19 harder than anywhere else in Europe, has said he will not sign off on the deal at the next European Council meeting on April 23, branding it inadequate.
The concept of Eurobonds first floated in 2011, would involve debt investments whereby an investor loans money, for a fixed period of time, and at a fixed rate of interest, to the eurozone bloc altogether, which then forwards the money to individual governments.
The system preferred by Mr Conte, would, therefore, involve issuing debt collectively as Eurobonds nicknamed coronabonds, to the 19 countries which comprise the eurozone, rather than individually, which would risk hard-hit countries such as Spain and Italy being required to repay loans at much higher rates of interest.
Countries in the north, most notably the Netherlands, are vehemently opposed to the idea.
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Mr Henkel told Express.co.uk: “The coronavirus has now been used as a pretext to introduce a gross violation of the European Stability Mechanism agreement and a clear first step towards a European Unemployment Scheme through the financial support of short working hours (‘Kurzarbeitergeld’).
“These are all steps towards the Europeanisation and socialisation of risks taken by national politicians. If all are responsible then no one is responsible in the end.
“If on top of that, if primarily due to French pressure, the Eurozone agrees to a ‘reconstruction fund’ based on Euro – or now called Coronabonds, all flood gates for irresponsible financial and economic policies are open.”
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Mr Henkel added: “The EU in Brussels, the European Parliament and, with the current exception of the Netherlands, the European Council want to justify this with another slogan: “Marshall Plan”. But in contrast to the situation after WW2, the enemy hasn’t destroyed anything. So what is to be reconstructed?
“Also, Coronabonds are meant for the Eurozone countries only. Their introduction will build yet another wall in the EU.
“To pick up the military language of the French President and other politicians (‘war’, ‘the front line’, ‘soldiers’, ‘Marshall Plan’) I pick up the term used by a Polish friend of mine: ‘The Corona Bonds become the Stalingrad of the EU!’
“It will either become an uncompetitive socialistic monster or break apart.
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“Britain will not be the last country to realize this and hit the road!”
Mark Littlewood, director-general of the Institute of Economic Affairs, was likewise highly sceptical about the concept.
He told Express.co.uk: “It’s reaching for the easy lever of debt rather than structural change. It’s also not at all clear that the debt associated with the crisis should be mutualised.
“Those nations taking on more remedial measures will face more debt and those choosing to be less generous with state funding, less so.
“A major crisis does, of course, lead to a case for debt to be taken on.
“But it can’t be the response to every unwelcome shock while you fail to reform the structure of the wider economy between crises.”
Mr Littlewood said debt mutualisation also risked what economists refer to as ‘moral hazard’.
He explained: “If you think someone else is responsible – or part responsible – for bailing you out, you act less responsibly.
“Mutualising EU borrowing could have this effect.
“The danger would be that some nations would think they can turn on the spending taps & send the bill (or some part of the bill) to Germany.
“Even serious consideration of these ideas can be dangerous. If I think there’s say a 30 percent chance that somebody else will clear my credit card bill, I’m likely to be more reckless – even though there is no guarantee they will do so.
“So it would be wise to nip these things in the bud.”
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