Who Makes the Rules

The controversy over "coronabonds" escalates as it had once done over eurobonds. Germany's economic dominance of the EU is at issue.

BERLIN/BRUSSELS (Own report) - The German government is doing its utmost to block the demand for issuing so-called coronabonds to combat the looming dramatic economic crisis. The demand is made by southern euro zone countries, particularly Italy, to ease their interest burden. Berlin, however, is categorically rejecting this - just as it had done a few years ago during the fight against the euro crisis, because this would increase its own low interest burden. Ultimately, that could somewhat reduce Germany's economic predominance within the EU - something the German government seeks to avoid by all means. This controversy nearly caused a clash during last Thursday's video conference of the EU's heads of states and governments. According to reports, it seems that the EU Commission had initially advocated the issuance of coronabonds and in the meantime, Commission President Ursula von der Leyen has come around to accept the idea. In Brussels, Berlin only agrees to loosen restrictions on relief measures that it needs to have loosened for itself - namely the ceilings on permissible new debts.

Growing Economic Gap

The controversy over a common EU economic policy during the corona crisis is rapidly becoming more acrimonious. According to reports last week, the EU Commission is planning to earmark billions in subsidies for unemployment insurances of member countries, particularly affected by the crisis, by issuing its own bonds on the financial markets.[1] Berlin is adamantly rejecting these bonds, often referred to as "coronabonds," just as adamantly as it had opposed issuing eurobonds during the euro crisis.[2] On Saturday, EU Commission President Ursula von der Leyen, declared that Brussels is not preparing to issue its own bonds. The "greater question of liability" lies behind the "catchword" coronabonds, and therefore, "reservations in Germany" and in other countries of the central and northern regions of the continent are quite "justified." Nevertheless, the President of the EU Commission expressed her concern over the growing economic gap within the EU. After all, the Union's aim is to "economically move closer together." It is not Italy's fault that it has been severely hit by the corona crisis. "Healthy" enterprises must be rescued now, von der Leyen declared. This is why the EU Commission is now working on a reconstruction plan.

Merkel's "Partial Victory"

During last Thursday's video conference of EU heads of states and governments - which nearly ended in the scandal of a fruitless adjournment - the simmering dispute over issuing common EU bonds came out into the open.[3] In the current controversy, the fronts being drawn were characteristic of the differences within the EU also at the time of the fight against the euro crisis. Whereas France, Italy and Spain have insisted on issuing common bonds, Germany, accompanied by Austria and the Netherlands has blocked it, this time as well. Chancellor Merkel had been "irritated" by "Italy's prime minister's aggressiveness," German media reported, based on official sources.[4] Still, Berlin has been able to achieve a "partial victory" by postponing the decision for two weeks. In the meantime, the euro group, under the chairmanship of the Portuguese Social Democrat Mario Centeno is tasked with drawing up a new concept for an EU bailout package framework to confront the economic consequences of the corona crisis. Given the seriousness of the situation in his country, Italy's Prime Minister Conte had demanded during the video conference that immediate measures be taken, which Merkel successfully blocked.

Intended Imbalances

In the run-up to the summit meeting, nine EU countries, led by France, addressed EU Council President, Charles Michel in a letter, demanding "solidarity" measures to counteract the crisis, including explicitly making common debts. Besides France, the other countries were Italy, Spain, Portugal, Greece, Slovenia, Belgium, Luxemburg and Ireland.[5] Berlin, on the other hand, wants to use the euro bailout European Stability Mechanism (ESM) fund, created during the euro crisis, where some €410 billion are available for crisis credits. Acquiring ESM funds, however, is tied to strict obligations and surveillance, as was carried out by the "Troika" during the euro crisis.[6] The revival of the looming dispute over the eurobonds goes straight to the heart of the EU's neoliberal economic structure, which tends to reinforce the socioeconomic imbalance among the member countries. Through the restrictions of common market and currency, the southern member countries see themselves at the mercy of Germany's more powerful export industry and those of the northern centers, without having structures that are counterweights for these blatant economic imbalances.

Berlin's Crisis Program

Berlin is trying to block all measures that would limit Germany's economic preponderance within the euro zone - a preponderance that Germany's austerity dictate had reinforced in the course of the euro crisis, and now forms the basis of Berlin's dominance over the EU. The eurobonds, now referred to as the "coronabonds," would lead to a lowering of the interest burdens for the euro zone's southern peripheral countries, thereby facilitating their struggle against the fully developing economic crisis. On the other hand, this, of course, would mean that the interest burden for the previously low-interest countries of the center, particularly Germany, would increase - something Berlin does not want to tolerate because it seeks to acquire around €156 billion [7] worth of low-interest credits within the framework of the comprehensive crisis management program. Whereas the German government is launching a comprehensive program to protect its own economy - including €600 billion [8] earmarked to protect its domestic export industry from takeovers by foreign firms - the EU's means for confronting the crisis are being restrained, as much as possible. While Berlin is pumping billions into its domestic economy, this prevents the periphery from applying a similar crisis policy - thus threatening to widen the existing gap within the euro zone. Should the current curfews and company closures actually be over by May, the northern center, could have a rapid revival of its export-oriented growth, while the southern periphery will remain bogged down for years in recession.

Expansive Monetary Policy

In monetary policy, the fronts in the current corona crisis also run along similar lines to those in the euro crisis. Following a brief hesitation, the European Central Bank (ECB) now agrees to indirectly soften the interest burden of the crisis-stricken EU countries, by buying their bonds on the financial market. The ECB's new program of bond purchasing amounts to around €750 billion, where explicitly "public sector securities" should be bought.[9] There is the "evil suspicion of state funding" in the air, reported leading pro-government media organs in Germany.[10] During her announcement of this means for confronting the crisis, French ECB President Christine Lagarde declared that the EU's central bank is ready to "exhaust the full potential of its tools." The main thing is to prevent further upheavals on financial markets, which are an additional burden on the economy. The detour over the financial markets is necessary, because the ECB is actually forbidden to engage in direct state financing. Lagarde also intervened, of course, in Thursday's video conference of the EU's heads of states and governments, however, her demand to have eurobonds issued, encountered a brick wall with Berlin.

Austerity Dictate Full of Holes

In addition to an expansive ECB monetary policy, a partial relaxation of the neoliberal EU stability pact should benefit the periphery. Berlin has agreed to suspend all measures that Germany would violate, itself, in the course of fighting this crisis, such as making new debts. In the context of the corona crisis bail-out package, the Bundestag has passed a suspension of debt limits, because the currently planned new debts will surpass the €100 billion.[11] The EU Commission had already announced that it would suspend the corresponding EU stability pact, which contains similar regulations limiting the amount of new debts.


[1] EU bleibt bei Corona-Bonds hart. n-tv.de 28.03.2020.

[2] See also Vom deutschen Euro zur deutschen EZB.

[3], [4] Tobias Kaiser, Christoph B. Schiltz: Merkel irritiert von der Aggressivität des italienischen Premiers. welt.de 27.03.2020.

[5] Markus Grabitz, Albrecht Meier: Neuer Name, alte Idee. tagesspiegel.de 26.03.2020.

[6] Merkel lehnt Corona-Bonds ab. spiegel.de 27.03.2020.

[7] Martin Ganslmeier: "Beispiellos", aber "notwendig". tagesschau.de 23.03.2020.

[8] 600-Milliarden-Euro-Fonds soll Firmen retten. n-tv.de 21.03.2020.

[9] EZB kündigt gigantisches Notkaufprogramm an. boerse.ard.de 19.03.2020.

[10] Der böse Verdacht der Staatsfinanzierung. tagesschau.de 24.03.2020.

[11] Bundestag beschließt historisches Hilfspaket. t-online.de 25.03.2020.