Germany First (III)

Pressure increased on Berlin on question of "coronabonds" - even from within German establishment. Implementation could secure German EU profits.

BERLIN/BRUSSELS (Own report) - At the euro finance minister's video conference the German government blocked the introduction of "coronabonds," in spite of massive pressure from other EU nations and recently even from within Germany. Whereas mainly Italy, Spain and France had insisted that this measure be taken, voices are now being raised from within the German establishment warning that the German government should stop blocking its implementation. The reason, as leading Green Party politicians are explaining, is that should Italy and Spain suffer economic collapse, Germany's export industry would be seriously damaged by the loss of these important markets, and - should German assistance be refused - both countries could turn to China. This must be prevented. The "coronabonds" will cost Germany, however, specialists estimated years ago that the costs would be in the lower double-digit billions, while Germany is simultaneously reaping triple-digit billions in profits - annually.

"We Need the Fourth Stage"

Prior to yesterday's Eurogroup video conference, politicians from France and Italy had increased their pressure on Berlin, to accept the introduction of "coronabonds" - if necessary, in a temporary form. A fund could be agreed upon that would "only exist between five and ten years," with "no relationship to the member countries' old debts," only financing "investments" and "paying off these debts within the period of its existence," announced France's Minister of the Economy and Finances, Bruno Le Maire yesterday.[1] The fund should be financed through common debts by all euro zone members, which is essential for insuring that interests remain at a level that can be financed by the southern members of the currency zone. Le Maire made clear that, first, he does not reject Berlin's plans to revert to the European Stability Mechanism (ESM) resources; second, nor to European Investment Bank credits or third, EU money for the unemployed and short-time workers; However, "We do need also a fourth stage, otherwise the rocket cannot take off ... We will not accept a plan with only three stages." EU Internal Market Commissioner Thierry Breton and EU Economic and Monetary Commissioner Paolo Gentiloni had already spoken out in favor of "a fourth pillar of European resources" on Monday. Germany will take on up to €356 billion in new debts - around ten percent of its Gross Domestic Product (GDP) - they wrote in a signed article in a major German daily. If other EU members would do the same to insure their economic equal opportunity, a new financial demand (...) in the area of €1500 - €1600 billion would be created." Without the "fourth pillar," mentioned above, this could not be administered.[2]

Save Markets

The pressure to approve implementation of "coronabonds" or some other comparable fund is also growing inside Germany - for various reasons. On the one hand, the realization is beginning to sink in that the corona crisis could have existential threatening consequences for the economies of the southern European countries. It is "not in our interests," that the economies of Italy or Spain are brought to their knees," reasoned, for example, Robert Habeck, National Chair of the Green Party. "Germany is an export nation. Italy is its sixth most important trading partner." Recently €68 billion worth of goods were sold to Italy alone; €44 billion in goods exported to Spain. "If these national economies founder, we go down with them."[3] With an eye on saving the euro zone, that enables German enterprises to make maximum profits ( reported [4]), influential German business think tanks are advising that the "coronabonds" or a corresponding fund should be accepted. "The German economy" is an "integral part of a European economy that can only be as strong as its weakest link," Marcel Fratzscher of the German Institute for Economic Research (DIW) was quoted.[5] Michael Hüther, Director of the German Economic Institute (IW) in Cologne also warned "without common crisis bonds, I see no way out for the Union."[6]

Eurobonds for the World Power

Geostrategic considerations are also behind the need for the further reinforcement of the EU within the global rivalry of powers. On the one hand, China must be prevented from strengthening its ties, through its assistance to countries such as Italy, declared Franziska Brantner, Europe-Spokesperson for the Green group in the Bundestag: The "corona crisis threatens to become a new passageway for China's new Silk Road strategy." "If Europe does not want to become the appendix of this Silk Road, we should help ourselves."[7] If nothing else, this requires "the singular implementation of specifically designated European bonds ('Coronabonds")." Green chair, Habeck shares this geostrategic - rather than a humanitarian - motive for wanting to see "coronabonds" implemented. According to Habeck, "the lack of (...) reliable bonds in the euro zone" is also a reason "why the euro plays a relatively limited role as a currency reserve." "Therefore, Europe is wasting an opportunity to enhance its geopolitical influence," writes Habeck. "Euros constitute only 20 percent of the global monetary reserves; the dollar is at 60 percent."[8] To remedy this, the issuance of euro bonds is, in the long-run, indispensable. This idea is also shared by former foreign ministers Joseph Fischer (Greens) and Sigmar Gabriel (SPD). In their appeal published last Sunday, Fischer and Gabriel wrote that the EU's "common currency will have to be collectively vouched for." "That is the only way the euro will become a truly international reserve currency and an alternative to the dollar. If we do not do this, Europe will not attain its economic sovereignty, and, when in doubt, will always be dependant on policies in the dollar realm."[9] In the long run, there is no way around euro bonds.

The Costs of Eurobonds

There are various estimates of what supplementary costs Germany would have to shoulder if eurobonds were introduced. In 2011, when the debate first surfaced, estimates of €17 billion annually were in consideration.[10] The Institute for the World Economy (ifw) in Kiel held a 0.5 percentage point yield markup for conceivable, and calculated Berlin's supplementary costs at upward from €10 billion annually. In its forecasts, the Munich-based Institute for Economic Research (ifo) concluded between €33 and €47 billion annually, however, many found this prognosis to be overestimated.[11] Inversely, Germany is massively profiting from the EU, both its single market and the common currency. According to calculations made by the Bertelsmann Foundation, thanks to the single market, Germany had a supplementary intake of around €86 billion in 2017, and according to research carried out by the Centre for European Policy (cep) located in Freiburg, due to the common currency, Germany had harvested a supplement of around €280 billion into its Gross Domestic Product (GDP) in 2017.[12] Therefore, the introduction of eurobonds would somewhat reduce Germany's net profits from the EU, however what remains would still be immense.

Go for Broke

Nevertheless, the German government, unwilling to relinquish even the smallest fraction of its profits from European integration, adamantly blocked the euro finance minister's insistent attempts to introduce temporary "coronabonds" - even under the danger that this could mean the end of the EU's existence. Berlin goes for broke.


[1] Christian Schubert: Der Wirtschaftslenker. Frankfurter Allgemeine Zeitung 07.04.2020.

[2] Thierry Breton, Paolo Gentiloni: Wir brauchen eine vierte europäische Säule. Frankfurter Allgemeine Zeitung 06.04.2020.

[3] Robert Habeck: Die Ablehnung von Corona-Bonds schadet Deutschlands Interessen. 06.04.2020.

[4] See also Germany First (II).

[5] OECD-Chef Gurria plädiert für Corona-Bonds. 07.04.2020.

[6] Alfons Frese: Deutscher Ökonom Hüther: "Ohne Gemeinschaftsanleihe sehe ich schwarz für die EU". 31.03.2020.

[7] Franziska Brantner: Europa wird zum Wurmfortsatz der Neuen Seidenstraße. 01.04.2020.

[8] Robert Habeck: Die Ablehnung von Corona-Bonds schadet Deutschlands Interessen. 06.04.2020.

[9] Joschka Fischer, Sigmar Gabriel: In der Corona-Krise geht es um Leben und Tod - auch für Europa! 05.04.2020.

[10], [11] Hanno Beck, Dirk Wentzel: Eurobonds - Wunderwaffe oder Sprengsatz für die Europäische Union? Wirtschaftsdienst. Zeitschrift für Wirtschaftspolitik. Oktober 2011. S. 717-723. Hier: S. 721.

[12] See also Germany First (II).