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Euro Corona bonds

Topics Covered: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

Euro Corona bonds

What to study?

For Prelims and Mains: The proposal and its significance.

 Context: Corona bonds could be a possible resolution to alleviate Eurozone financial struggles amid the coronavirus crisis. However, the idea has received mixed responses amongst the EU.

What are corona bonds?

Corona bonds would be a collective debt amongst EU member states, with the aim of providing financial relief to Eurozone countries battered by the coronavirus.

The funds would be mutualised and supplied by the European Investment Bank, with the debt taken collectively by all member states of the European Union.

What’s the issue now?

Not all countries in the European Union (EU) are in favour of this idea. The idea of corona bonds has received reinforcement from nine EU countries, all keen to reach a financial solution as soon as possible.

However, there also remains steep opposition to the idea of corona bonds. The resistance has come most notably from the ‘Frugal Four’. The Frugal Four consists of:

  1. Germany
  2. The Netherlands.
  3. Finland
  4. Austria

What’s the basis for opposition?

These countries are of the opinion that finance is an individual nation’s responsibility. They believe that each EU member state should keep their finances in order.

Why have corona bonds?

  • The advantage of corona bonds is that they would allow European countries to gain essential financial support.
  • States could receive economic aid without expanding their national debt.
  • If the EU member states were able to show a display of unity, this would likely strengthen confidence amongst Europe.

Concerns:

  1. A disadvantage of corona bonds is that it would not necessarily enhance debt sustainability.
  2. The concept would only aid future debt forgiveness, distinguishing between coronavirus related debt and legacy debt.
  3. The implementation of a common bond amongst EU member states could also potentially take a lot of time. The delay is not ideal for countries who require access to funds immediately.

Insta Links:

Prelims Link:

  1. Euro zone Vs EU vs European Commission.
  2. EU- composition, governance and members.

Mains Link:

Discuss how the proposed corona bond would help the Europe come out of the economic crisis brought about by the lockdown imposed because of COVID 19.

Sources: Indian Express.