What are coronabonds?

Coronabonds are an idea mooted by a number of eurozone countries—most notably France, Italy and Spain—to issue collective debt in order to combat the economic impact of the coronavirus (COVID-19) outbreak. Nine national leaders of eurozone member states signed a public letter prior to the European Council summit on 26 March calling for their fellow eurozone governments to consider such a proposal.

Issuing debt collectively—as 19 countries, rather than one—would the reduce the perception among creditors that they might not get their money back, on which interest rates are largely calculated. That would mean the interest rate on such debt would be lower for many member states than if they borrowed alone.

However, a number of countries, most notably Germany and the Netherlands, have so far rejected the idea. They see it as potentially putting their taxpayers on the hook for the debt of other countries. Both tend to have conservative fiscal policies, with low debt and low deficits, and argue that other pre-existing eurozone tools should be used to overcome the COVID-19 outbreak. They also worry that coronabonds could be the thin end of the wedge towards making all eurozone debt mutually held, something which they also resisted during the global financial and eurozone crises.

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