Current Event Update: Thursday, may 21st

By Andrew Shi

Raised after the 2008 financial crash, the idea of deploying EU bonds has recently received attention as European states find themselves bordering on financial collapse. Covid-19 has sunken many of the largest economies of the world, and Europe predicted “recession of historic proportions” is expected for the ears to come. In addition to the upcoming financial hardships, greater federal spending has been deemed necessary with investment in both unemployment insurance and healthcare costs rising. The 19 nations within the EU are all expected to face contractions of 7% or higher over the following years, with Italy and Spain, being the hardest hit, likely to experience far larger. 

As a response, a policy alternative to traditional bonds would be EU-wide bonds. This would group less safe southern European bonds with those of stronger northern European economies. For southern states, the hope would be that access to EU bonds would bring in necessary capital at a critical moment for lower interest rates than if they were to issue bonds themselves. The main opposition however, has been northern economies, as Germany and France would shoulder much of the risk for default. Recently though, Merkel has backed proposals to issue such bonds, and other states are likely to follow suit. We may be seeing a future where EU bonds are a critical part of the European financial landscape.