Rehn praises Eurobonds, admits challenges

Olli Rehn says Eurobonds must come with deeper economic and political integration

Olli Rehn, the European commissioner for economic and monetary affairs, admitted today that the introduction of Eurobonds, while a good thing, would not be easy to achieve.

Speaking at a conference on Eurobonds organised by the Liberals in the European Parliament, Rehn said that the joint issuance of member state bonds could “provide substantial benefits” for participating states.

“The potential advantages seem clear and large,” said Rehn. “Joint bonds would act as a driver of integration and efficiency of European bond markets. They could lower transaction costs and reduce government borrowing costs.”

He said, however, that there were “serious challenges to make them work.”
“It won’t be easy to achieve,” Rehn said, adding that any move toward joint bonds would require much deeper economic and political integration to win market confidence.

He said the common bonds should be “very safe and reliable instruments” to achieve market credibility and acceptance.

He warned that there were some problems with proposals on Eurobonds or stability bonds currently being debated as part of the European Commission’s green paper on the issue, which was presented on 23 November. Rehn said that there was a risk of moral hazard in so far that debtor countries could use joint bonds as a free ride to avoid tough decisions on fiscal policies.

Fiscal discipline

Addressing the economic and debt crisis, Rehn said that this year would mark a “profound transformation” in the EU’s economic governance structure.

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He said the changes introduced by recently adopted EU legislation on bolstering economic governance and the drafting of an intergovernmental treaty to improve fiscal discipline within the eurozone were “essential” to restoring economic growth.

Guy Verhofstadt, leader of the Alliance of Liberals and Democrats for Europe (ALDE) group in the Parliament, said the use of Eurobonds would lower the financing costs of member states which would free up resources to invest in job creation.

He said Eurobonds and deeper economic governance rules would “prepare the ground” to establish the euro as the global reserve currency.