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In Germany, Commerzbank Chief Calls for Eurobonds

Eurobonds have his Blessing. Source: Reuters
Eurobonds have the blessing of the German CEO of Commerzbank.
  • Why it matters

    Why it matters

    Eurobonds would enhance Europe’s status as a financial center by creating a liquid bond market that boosts the euro’s value as a reserve currency.

  • Facts


    • Eurobonds would give euro countries stronger incentives for fiscal discipline.
    • The bonds would create a secure, attractive market for international investors.
    • Joint bonds would reduce the dependence of national banks on European countries.
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“Politics begins with the contemplation of reality.” This statement from the German post-war Social Democrat Kurt Schumacher describes a pragmatic understanding of politics free from wishful thinking. It is exactly this point of view that we should have when we take stock of issues relating to the euro and look at the prospects of Europe’s economic and currency union. Two facts strike me as particularly important.

First, the Continent’s financial and sovereign debt crisis is not over. The intervention by European political leaders and above all by the European Central Bank has eased the acute threat since mid-2012. And the ECB purchase program will only buy some time. It doesn’t solve the problems. The most recent turbulence in Portugal involving Banco Espirito Santo has made that dramatically clear.

Second, a large part of international business must be conducted in U.S. dollars even though it is not taking place in the United States. This has considerable effect on the competitiveness of the respective financial markets. And in order to level the playing field with the United States, there must be a successful push to establish the euro as a safe haven investment.

If that does not work, both the euro, and with it all of Europe, are at risk of losing relevance compared to world powers such as the United States and China. Therefore, the euro is not just a currency, but also a political project.

Further essential reforms are, therefore, needed to strengthen the security and significance of the euro. I am firmly convinced that a common currency cannot work in the long-term without joint fiscal policy and discipline.

Let’s contemplate reality. The idea from the Maastricht Treaty of “self commitment of all to binding rules” has not worked. And the debate currently over the softening of the fiscal pact shows that the second attempt to make it work is also at risk of failing.

It will also take decades for the realization of political union in Europe, if it ever comes. In addition, a further political integration only has a chance if the euro is established as a strong and reliable reserve currency next to the U.S. dollar.

How will that work? With the launch of “real” eurobonds. And not as I had previously advocated as the last step at the end of the processes of political union. Liability for the indebtedness of the other member states has already happened due to the activities of the European Central Bank.

With the message from ECB President Mario Draghi — “whatever it takes” — in July 2012, eurobonds were essentially introduced through the back door. Furthermore, the European Stability Mechanism is already issuing community bonds. As recently as July 2014, more than €4 billion were issued via a 30-year-bond.

If these bonds fail, the member states are liable for a percentage at the level of their ECB shares, in Germany’s case 27 percent. Unlike if there had been an explicit joint liability, in this case there would be no necessary political measures taken.

In short: a joint liability already exists for the euro-zone countries. We must accept that. Therefore, I consider a legal and binding framework for eurobonds to be absolutely necessary.

This legal and binding framework should give the euro zone countries strong incentives for improved fiscal discipline. It should also create a more secure and liquid bond market for international investors. And it can reduce the mutual dependence of banks and countries.

Eurobonds are a hot-button topic, especially for many Germans. For them, eurobonds pave the way for a transfer union, create false incentives and undermine the will to reform in crisis-hit countries.

My argument against that is firstly, there is not just one concept for eurobonds. There are many different possibilities that, especially during the high point of the sovereign debt crisis, were the subject of controversial debate.

Secondly, and this is crucial, the general conditions are different now than they were three years ago. The banking union will change a lot in Europe. With European supervision, Europe has made a great step forward on the way to an integrated European financial market.

In my opinion, it is no longer a question of “if” but rather “when”and “how”eurobonds will be launched. We should not close our eyes to reality, but should soberly weigh it and create a legitimately democratic process for borrowing in euros.

A Plea for “Real” Eurobonds

Jointly secured bonds are conceivable in many different variations. Essentially, they differ by the nature and extent of the liability and the amount of the national bond issues, which should, in part, be replaced.

In my approach to eurobonds I strive for a fair balance between the communization of sovereign debt and preserving the autonomy of euro zone countries.

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