Government Borrowing during Covid-19 crisis

efanton · 08-04-2020 11:56pm #1

I know there are a few economics heads that frequent these forums and I am hoping they might be able to answer a few questions and explain the differences between the different borrowing option available to the government

Bonds
Today the government borrowed 6 billion from the markets by issuing bonds.
They were offered upt to 30 billion but choose just to boor 6 billion.
As I understand it the interest rate on these is just 0.25%

Questions I would ask.
Why borrow only 6 billion when we know the government is burning through over 2 billion per month. Would it not have been wiser to borrow more?
Are there any other terms or condition attached to these bond other than paying back interest?

CoronaBonds.
The government were in talks with other EU leaders over the last few days to see if there could be a way of the EU issuing bond

As I understand it, and please correct me if I am wrong, thee bonds would be a way of sharing the cost of the crisis across the whole of the EU and with the whole weight of the EU economies behind them potentially be a cheaper way of borrowing.

I fails to see the advantage of these corona bonds instead of using the billions that the ECB is issuing. Is there an advantage?
Cheaper, but with strings attached, might not be best.

ESM
Yes that dreaded mechanism that brought austerity to Ireland.

Have the terms and condition for using the ESM changed?
Is this still the option of last resort?

I would truly appreciate anyone helping to explain the real piratical differences between with borrowing mechanisms, what they might mean to us if we use them in the years to come, and why we are not grabbing now more than the 6 billion borrowed, being that we know the crisis is going to cost considerably more than that.

Eric Cartman · 09-04-2020 12:07am

The last thing us and most of Northern Europe want is corona bonds or similar. Germany is heavily resisting them as it would basically make us , Germany , and the other rich countries in Europe liable for that debt. Bailing out the likes of Spain and Italy is absolutely not what Ireland needs or wants and will just exacerbate the problem.

As for the bonds we issued on the market, I think the 6 billion is more intending to use them as a cashflow gap until such time as the ESF / ECB funds come through. I don't think we want to be out to the markets on low yield bonds to finance all of this.

noodler · 09-04-2020 12:11am

Eric Cartman wrote: »

The last thing us and most of Northern Europe want is corona bonds or similar. Germany is heavily resisting them as it would basically make us , Germany , and the other rich countries in Europe liable for that debt. Bailing out the likes of Spain and Italy is absolutely not what Ireland needs or wants and will just exacerbate the problem.

As for the bonds we issued on the market, I think the 6 billion is more intending to use them as a cashflow gap until such time as the ESF / ECB funds come through. I don't think we want to be out to the markets on low yield bonds to finance all of this.

1. The NTMA have over 20bn on hand.

They only borrowed a top up to that today (in every sovereign bond auction demand outstrips supply)

2. Nothing to say yet.

3. The point of borrowing from the ESM when we have access to the markets at rates of 0.25% is a bit moot.

efanton · 09-04-2020 12:17am

noodler wrote: »

1. The NTMA have over 20bn on hand.

They only borrowed a top up to that today (in every sovereign bond auction demand outstrips supply)

2. Nothing to say yet.

3. The point of borrowing from the ESM when we have access to the markets at rates of 0.25% is a bit moot.

Im not asking as to whether we should or should not borrow.

I am trying to understand what the differences are between the various forms of borrowing available to the government, and the long term impact the different forms of borrowing have.

noodler · 09-04-2020 12:37am

efanton wrote: »

Im not asking as to whether we should or should not borrow.

I am trying to understand what the differences are between the various forms of borrowing available to the government, and the long term impact the different forms of borrowing have.

You asked why we didn't borrow all that was on offer at the recent auction.

There is no coronabond.

ESM is for when you are locked out of the sovereign bond market (rates are too high).

This is not the case for us at the moment as you can see by the 0.25%.

Kermit.de.frog · 09-04-2020 12:52am

ESM bailout comes with strict conditions.

Italy and Spain should go that route.

No way should we back a common debt vehicle with those countries. That leaves all of us on the hook one way or the other.

efanton · 09-04-2020 12:52am

noodler wrote: »

You asked why we didn't borrow all that was on offer at the recent auction.

There is no coronabond.

ESM is for when you are locked out of the sovereign bond market (rates are too high).

This is not the case for us at the moment as you can see by the 0.25%.

I understand the coronabonds do not exist yet. This is why I am confused as to why governments, including Ireland, are seeking to create them when ordinary bonds are at such a low rate.

The only reason I asked as to why we did not borrow more, I assume with will have to before this crisis is over, is that I assumed that one of the other mechanisms might be advantageous. How that might be I do not understand.

Without understanding the differences between government bonds, ECB funds, coronabonds and ESM borrowing how can the ordinary citizen make sense of what is currently going on, and what the likely long term impact of decisions made during the crisis might be.

I know it might be novel on Boards.ie for someone to admit they dont know what they are talking about it, but I genuinely would be interested in learning the differences between the different forms of borrowing and their potential impact.

Kermit.de.frog · 09-04-2020 1:02am

efanton wrote: »

Without understanding the differences between government bonds, ECB funds, coronabonds and ESM borrowing how can the ordinary citizen make sense of what is currently going on, and what the likely long term impact of decisions made during the crisis might be.

Eurobonds (or Coronabonds which are suppose to be a more temporary arrangement) would essentially mean Spain and Italy would be able to borrow off Germany's credit card with German interest rates.

All of us would be exposed in the long run to profligacy of countries who should not have such a low cost to borrow, have not earned it and have lived for decades beyond their means.

Their interest rates would fall, ours would go up as the risk is priced in across the Eurozone.

Under no circumstances should we do that. That is not right.

It's not fair.

Italy can earn a low cost of borrowing through reform.

Geuze · 09-04-2020 1:28am

Eric Cartman wrote: »

As for the bonds we issued on the market, I think the 6 billion is more intending to use them as a cashflow gap until such time as the ESF / ECB funds come through. I don't think we want to be out to the markets on low yield bonds to finance all of this.

Note that the ECB do not lend to Govts.

noodler · 09-04-2020 1:30am

efanton wrote: »

I understand the coronabonds do not exist yet. This is why I am confused as to why governments, including Ireland, are seeking to create them when ordinary bonds are at such a low rate.

The only reason I asked as to why we did not borrow more, I assume with will have to before this crisis is over, is that I assumed that one of the other mechanisms might be advantageous. How that might be I do not understand.

Without understanding the differences between government bonds, ECB funds, coronabonds and ESM borrowing how can the ordinary citizen make sense of what is currently going on, and what the likely long term impact of decisions made during the crisis might be.

I know it might be novel on Boards.ie for someone to admit they dont know what they are talking about it, but I genuinely would be interested in learning the differences between the different forms of borrowing and their potential impact.

Italy's 10 year yield is around 1.6%.

Much higher than ours.

A coronabond, like the ESM, would be backed by all EU/euro area countries so would be deemed more secure and be sold at a much lower yield.

Italy would save money.

Geuze · 09-04-2020 1:32am

efanton wrote: »

I know there are a few economics heads that frequent these forums and I am hoping they might be able to answer a few questions and explain the differences between the different borrowing option available to the government

Bonds
Today the government borrowed 6 billion from the markets by issuing bonds.
They were offered upt to 30 billion but choose just to boor 6 billion.
As I understand it the interest rate on these is just 0.25%

Questions I would ask.
Why borrow only 6 billion when we know the government is burning through over 2 billion per month. Would it not have been wiser to borrow more?
Are there any other terms or condition attached to these bond other than paying back interest?

Note that the NTMA started the year with plenty of cash on hand.

Note that the NTMA lay out their plans:

https://www.ntma.ie/news/ntma-to-borrow-less-in-2020-than-in-2019

https://www.ntma.ie/news/ntma-issuance-schedule-for-quarter-2-2020

NTMA Issuance Schedule for Quarter 2, 2020
1 April 2020 – The National Treasury Management Agency (NTMA) announces the following issuance schedule for the current calendar quarter, subject to market conditions.

Syndication

The NTMA plans to launch a new government bond by syndication in April.

Bond Auctions

• Thursday 14 May 2020

• Thursday 11 June 2020

Details of the bond auctions will be announced on the Monday prior to each auction.

Treasury Bill Auctions

• Thursday 16 April 2020

• Thursday 21 May 2020

• Thursday 18 June 2020

Details of the May and June Treasury Bill auctions will be announced on the Monday prior to each auction while the April auction will be announced on the Tuesday prior to the auction.

Geuze · 09-04-2020 1:33am

efanton wrote: »

CoronaBonds.
The government were in talks with other EU leaders over the last few days to see if there could be a way of the EU issuing bond

As I understand it, and please correct me if I am wrong, thee bonds would be a way of sharing the cost of the crisis across the whole of the EU and with the whole weight of the EU economies behind them potentially be a cheaper way of borrowing.

I fails to see the advantage of these corona bonds instead of using the billions that the ECB is issuing. Is there an advantage?
Cheaper, but with strings attached, might not be best.

What do you mean by "billions the ECB is issuing"?

Geuze · 09-04-2020 1:34am

efanton wrote: »

ESM
Yes that dreaded mechanism that brought austerity to Ireland.

Have the terms and condition for using the ESM changed?
Is this still the option of last resort?

Yes, it has been stated that the conditionality would be reduced/lightened.

Geuze · 09-04-2020 1:37am

efanton wrote: »

I understand the coronabonds do not exist yet. This is why I am confused as to why governments, including Ireland, are seeking to create them when ordinary bonds are at such a low rate.

The only reason I asked as to why we did not borrow more, I assume with will have to before this crisis is over, is that I assumed that one of the other mechanisms might be advantageous. How that might be I do not understand.

Without understanding the differences between government bonds, ECB funds, coronabonds and ESM borrowing how can the ordinary citizen make sense of what is currently going on, and what the likely long term impact of decisions made during the crisis might be.

Is Ireland pushing for eurobonds / coronabonds? I don't think so?

The "frugal four" are against them: AT, DE, NL, ??

What do you mean by ECB funds?

Plumbthedepths · 09-04-2020 1:39am

Eric Cartman wrote: »

The last thing us and most of Northern Europe want is corona bonds or similar. Germany is heavily resisting them as it would basically make us , Germany , and the other rich countries in Europe liable for that debt. Bailing out the likes of Spain and Italy is absolutely not what Ireland needs or wants and will just exacerbate the problem.

As for the bonds we issued on the market, I think the 6 billion is more intending to use them as a cashflow gap until such time as the ESF / ECB funds come through. I don't think we want to be out to the markets on low yield bonds to finance all of this.

I think you need to inform yourself who Ireland have aligned themselves with. The behaviour of the Dutch and to a lesser extent the Germans has shocked our officials.

efanton · 09-04-2020 1:43am

Geuze wrote: »

What do you mean by "billions the ECB is issuing"?

As I understand it the ECB guaranteed to buy up to €750 billion worth of EU government bonds.

I assume that by buying them or guaranteeing them they are locking in the interest rate and the debt will now be owed to the ECB

In effect to me as an ordinary joe soap its the same as a vulture fund buying you mortgage from a bank. You no longer owe the bank money you now owe the vulture fund.

touts · 09-04-2020 1:45am

David McWilliams and other economists are calling for 100 year bonds that are specifically for Corona costs. Countries count up how much they have spent in the fight against Covid19 and the ECB gives them the money as a loan that has to be paid back in 100 years. No austerity needed and the gamble is in 100 years the money needed will be relatively small.

Germany and others don't want to do that because they won't profit from it. There is a reason death rates are so low in Germany. They have a world class health system that never suffered any austerity. It was mainly German investment funds that gambled on the empty promises of private banks in Ireland, Spain Italy etc and were the infamous "bond holders" who were paid back with interest by asset stripping Ireland, Spain, Italy etc. So in a way the extra taxes we paid were used to build hospitals in Berlin and Munich. Forcing Italy, Spain Ireland etc to take out massive loans again now will fund the next 20 years of infrastructure in Germany, Holland etc.

That's the battle that is going on now. The Germans and Dutch will spin it as a battle to put manners on the foolish Italians and Irish and Spanish. In reality it is a battle for the future of the EU. Will we be a collection of equal states who help each other in a time of crisis. Or will we be the fourth Reich with all benefits flowing to the center of the empire. Of course that second option won't happen because the EU will fall apart long before we reach that stage. We are at the the decision point right now and what the EU decide to do this month will shape the future of the Continent for the rest of the century.

efanton · 09-04-2020 1:47am

Geuze wrote: »

Is Ireland pushing for eurobonds / coronabonds? I don't think so?

The "frugal four" are against them: AT, DE, NL, ??

What do you mean by ECB funds?

Apparently they are

https://www.irishtimes.com/news/world/europe/this-time-the-future-of-the-euro-really-is-at-stake-1.4224394

One dream of what the future of Europe might look like was already over: the idea that it could be shaped by the so-called New Hanseatic League.

Called the Hansa for short, this collection of the Netherlands, Ireland, and Baltic and Scandinavian states was brought together by the departure of Britain from the European Union. As a group, it hoped to replace the UK’s clout on economic matters and defend a trade-friendly, pro-business viewpoint.

Ireland left it by joining the call of nine states including, Italy, Spain and France, for joint debt issuance in the form of eurobonds or coronabonds.

Geuze · 09-04-2020 1:55am

efanton wrote: »

As I understand it the ECB guaranteed to buy up to €750 billion worth of EU government bonds.

I assume that by buying them or guaranteeing them they are locking in the interest rate and the debt will now be owed to the ECB

In effect to me as an ordinary joe soap its the same as a vulture fund buying you mortgage from a bank. You no longer owe the bank money you now owe the vulture fund.

Yes, the ECB did launch a new round of QE / asset purchases, for 750bn.

https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html

https://www.ecb.europa.eu/mopo/implement/pepp/html/index.en.html

The Irish Govt owes whoever holds the debt.

The interest rate is fixed from day 1, it doesn't matter to the Irish Govt how many times the bonds change hands afterwards.

If €100 is to be repaid, it is repaid, it doesn't matter who the holder of the bond is.

noodler · 09-04-2020 1:56am

Someone said the ESM brought austerity to Ireland??

Strange one.

Can the ECB buy government bonds directly? Not sure it can.

Geuze · 09-04-2020 1:57am

efanton wrote: »

In effect to me as an ordinary joe soap its the same as a vulture fund buying you mortgage from a bank. You no longer owe the bank money you now owe the vulture fund.

Please note that Govt bonds are bought and sold every day.

I don't know for sure, but a 20yr bond could have dozens of owners during the 20 years.

Geuze · 09-04-2020 1:58am

noodler wrote: »

Can the ECB buy government bonds directly? Not sure it can.

I thought the ECB buys only in the secondary markets?

Geuze · 09-04-2020 2:00am

noodler wrote: »

Can the ECB buy government bonds directly? Not sure it can.

https://www.ecb.europa.eu/ecb/legal/pdf/celex_32020d0440_en_txt.pdf

"secondary" mentioned.

efanton · 09-04-2020 2:00am

Geuze wrote: »

Yes, the ECB did launch a new round of QE / asset purchases, for 750bn.

https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html

https://www.ecb.europa.eu/mopo/implement/pepp/html/index.en.html

The Irish Govt owes whoever holds the debt.

The interest rate is fixed from day 1, it doesn't matter to the Irish Govt how many times the bonds change hands afterwards.

If €100 is to be repaid, it is repaid, it doesn't matter who the holder of the bond is.

And this is the part I am trying to get my head around.

What advantage is there of the ECB buying government bonds if those bond have a fixed rate and fixed term already?

Kermit.de.frog · 09-04-2020 2:12am

noodler wrote: »

Italy's 10 year yield is around 1.6%.

Much higher than ours.

A coronabond, like the ESM, would be backed by all EU/euro area countries so would be deemed more secure and be sold at a much lower yield.

Italy would save money.

We'd pay more.

And we would be exposed to traditional Italian profligacy, as well as Greek and to a lesser extent Spanish.

That's the problem.

That is why the rich countries will never sign up.

And they are 100% right.

Geuze · 09-04-2020 2:16am

efanton wrote: »

And this is the part I am trying to get my head around.

What advantage is there of the ECB buying government bonds if those bond have a fixed rate and fixed term already?

A fair question.

What you are asking is "through what channels does QE work?".

https://www.intereconomics.eu/contents/year/2015/number/4/article/quantitative-easing-in-the-euro-area-transmission-channels-and-risks.html

https://www.europarl.europa.eu/cmsdata/116964/COMPILATION_Nov%202016_TOPIC_3_FINAL_online.pdf

https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2016/qe-the-story-so-far-slides

efanton · 09-04-2020 2:17am

Kermit.de.frog wrote: »

We'd pay more.

And we would be exposed to traditional Italian profligacy, as well as Greek and to a lesser extent Spanish.

That's the problem.

That is why the rich countries will never sign up.

And they are 100% right.

So why is Ireland in the Coronabond camp?
Is it a fear that at some point there will be no demand for government bonds?

Geuze · 09-04-2020 2:18am

efanton wrote: »

And this is the part I am trying to get my head around.

What advantage is there of the ECB buying government bonds if those bond have a fixed rate and fixed term already?

Bond prices up.

Bond yields down.

Correct, this is no help for existing debt.

But is does help reduce all LT interest rates on new debt.

efanton · 09-04-2020 2:24am

Geuze wrote: »

A fair question.

What you are asking is "through what channels does QE work?".

https://www.intereconomics.eu/contents/year/2015/number/4/article/quantitative-easing-in-the-euro-area-transmission-channels-and-risks.html

https://www.europarl.europa.eu/cmsdata/116964/COMPILATION_Nov%202016_TOPIC_3_FINAL_online.pdf

https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2016/qe-the-story-so-far-slides

Thank you so much for those links. A lot to read but exactly what I am looking for from first glance.
I guess I have something to do tomorrow to while away the virus boredom.

I have never had a financial head, its all smoke and mirrors to me, much prefer my science and physics. It might be difficult but there's normally only one correct answer, and a fair amount of certainty.

Kermit.de.frog · 09-04-2020 2:26am

efanton wrote: »

So why is Ireland in the Coronabond camp?
Is it a fear that at some point there will be no demand for government bonds?

I have no idea why Ireland is siding with the med.

Makes no sense to me.

Remember also Eurobonds would represent relinqiushing financial sovereignty.

People would want to be very clear about the implications.

I don't think the Irish people want a finance ministry in Brussels giving us a quota of our own money annually.

This is what the tiny minority of EU fanatics do in high places - they try and bring this stuff in under the cloak of crisis.

It's a disgraceful tactic they tried in the financial crisis - it failed then and it will fail now because voters don't want it. In particular the rich countries will never support it.

They never get the message.

It annoys me that every time there is a crisis we are asked to surrender ever more sovereignty.

otnomart · 09-04-2020 8:50am

Geuze wrote: »

Is Ireland pushing for eurobonds / coronabonds? I don't think so?

The "frugal four" are against them: AT, DE, NL, ??

What do you mean by ECB funds?

On 25 March, the Irish Gov co-signed letter to European Council calling for "coronabonds"
https://www.ft.com/content/258308f6-...f-41bea055720b
https://www.rte.ie/news/europe/2020/...e-coronabonds/
Five more Countries then joined Ireland, France, Belgium, Luxembourg and others: the three Baltics, Slovakia and Cyprus.
It is a total of 14 Countries including Ireland now pushing for this.
On the other side: Netherlands, Austria, Finland and Germany.

otnomart · 09-04-2020 10:04am

"France is not ruling out the idea of issuing debt with other European countries and could set up a coalition of motivated countries in the event of a German veto, an Elysian source told Reuters agency. The idea of a coalition initially floated by Pascal Lamy could yet make its way."
Source: https://www.euractiv.com/section/all/short_news/france-hints-at-eu-coalition-of-willing-to-issue-joint-debt/

Nody · 09-04-2020 10:49am

Corona bonds only works if the EU also had the right to set a countries budget which all supporters of the idea are strongly against; what they want is exactly how Republicans run USA. Individual (country) freedom & profit when things go well and shared (preferably handed over to the state) responsibility when things go bad. It's the worst of two worlds; either you have a common bond and the budgets are controlled by the EU or you have country responsibility for the budget and funding. You can't cheery pick to have country freedom and then shared responsibility to pay it back because that will only further encourage vote buying practices in countries and that's exactly why Italy et al are so against any requirements on any money they get. They don't want an actual corona or euro bond; they want more money without any responsibility to come with it and then shove the cost over to other countries to pay it back for them. That's not about EU unity; if anything that's about country greed.

Kermit.de.frog · 09-04-2020 11:59am

Nody wrote: »

Corona bonds only works if the EU also had the right to set a countries budget which all supporters of the idea are strongly against; what they want is exactly how Republicans run USA. Individual (country) freedom & profit when things go well and shared (preferably handed over to the state) responsibility when things go bad. It's the worst of two worlds; either you have a common bond and the budgets are controlled by the EU or you have country responsibility for the budget and funding. You can't cheery pick to have country freedom and then shared responsibility to pay it back because that will only further encourage vote buying practices in countries and that's exactly why Italy et al are so against any requirements on any money they get. They don't want an actual corona or euro bond; they want more money without any responsibility to come with it and then shove the cost over to other countries to pay it back for them. That's not about EU unity; if anything that's about country greed.

Precisely.

They tried in 2010 (despite the fact the problems stemmed from decades of gross economic mismanagement) to push this.

They want Germany's credit card essentially and burden sharing.

Why would any German or other contributing government do that?

We are net contributors now and we also should have our eyes wide open to this. It's our money now too.

otnomart · 09-04-2020 12:24pm

Kermit.de.frog wrote: »

Precisely.

They tried in 2010 (despite the fact the problems stemmed from decades of gross economic mismanagement) to push this.

They want Germany's credit card essentially and burden sharing.

Why would any German or other contributing government do that?

We are net contributors now and we also should have our eyes wide open to this. It's our money now too.

Ireland, France, Belgium, Luxembourg, Italy are all net contributors into the EU and they have all signed the letter requesting coronabonds.

Nody · 09-04-2020 1:10pm

otnomart wrote: »

Ireland, France, Belgium, Luxembourg, Italy are all net contributors into the EU and they have all signed the letter requesting coronabonds.

It's not about contributing to the EU budget that we're talking about; it's the contributing to loan to country budgets which is a whole different topic. Italy wants to borrow money for their country budget (and by extension payments to EU) and then have Germany pay for their loans when they can't handle the payments anymore. Italy's net contribution is about 2 billion EUR to the budget while Germany net contributes 18 billion already; why in any world would Germany then go on and subsidize Italy further on their borrowing to buy votes for the local party without having any fiscal control over the matter? But do you know what does larger countries you listed do have in common? Higher interest rates than Germany because they have not managed their economies (esp. Italy with a economical plan that has zero feasibility but buy votes and the market offers interest accordingly) ; that's why they all think a "corona bond" is a "EU Solidarity" because they want others to pay for their spending when in reality Germany is already subsidizing them in the first place via the euro. If Italy was not part of the euro they would have way higher interest rates on their bonds than today.

efanton · 09-04-2020 1:37pm

Nody wrote: »

It's not about contributing to the EU budget that we're talking about; it's the contributing to loan to country budgets which is a whole different topic. Italy wants to borrow money for their country budget (and by extension payments to EU) and then have Germany pay for their loans when they can't handle the payments anymore. Italy's net contribution is about 2 billion EUR to the budget while Germany net contributes 18 billion already; why in any world would Germany then go on and subsidize Italy further on their borrowing to buy votes for the local party without having any fiscal control over the matter? But do you know what does larger countries you listed do have in common? Higher interest rates than Germany because they have not managed their economies (esp. Italy with a economical plan that has zero feasibility but buy votes and the market offers interest accordingly) ; that's why they all think a "corona bond" is a "EU Solidarity" because they want others to pay for their spending when in reality Germany is already subsidizing them in the first place via the euro. If Italy was not part of the euro they would have way higher interest rates on their bonds than today.

Surely what Italy and Spain are looking for is to be able to borrow at the same rate as Germany.

A coronabond, because it represents ALL EU countries would have the lowest interest rate possible far lower than say a Italian government bond. It would be perfectly understandable for Italy and Spain to want this being that the virus epidemic was not of their own making surely a reasonable thing of other countries to agree to as long as what is borrowed by Italy and Spain is payed by Italy and Spain.

I see nothing that suggests that if coronabonds were put in place that those using these bonds would not be paying that debt or expect other to pay that debt for them.

Also the maturity date on coronabonds could be far far further in the future. If Italy issued a 50 year bond would there be a demand for it? possibly not, but their probably would if it was a coronabond backed by the entire EU.

I guess its all down to the terms and conditions agreed by the EU countries for these coronabonds, but I suspect some of the reluctance is not that countries end up paying other countries debts but more likely that some countries such as Germany, Holland etc, might lose economic advantage or have less control in the EU parliament and financial bodies.

Nody · 09-04-2020 1:56pm

efanton wrote: »

Surely what Italy and Spain are looking for is to be able to borrow at the same rate as Germany.

Which will never happen until they manage their economy properly (blended interest rates etc.).

A coronabond, because it represents ALL EU countries would have the lowest interest rate possible far lower than say a Italian government bond. It would be perfectly understandable for Italy and Spain to want this being that the virus epidemic was not of their own making surely a reasonable thing of other countries to agree to as long as what is borrowed by Italy and Spain is payed by Italy and Spain.

Nope; a corona bond is suppose to be a blended bond backed up by ALL EU countries which means if Italy defaults or can't pay then the other EU countries have to pick up the bill.

I see nothing that suggests that if coronabonds were put in place that those using these bonds would not be paying that debt or expect other to pay that debt for them.

"Corona bonds" are joint debt issued to member states of the EU. The funds would be common and would come from the European Investment Bank.

This would be mutualised debt, taken collectively by all member states of the European Union.

Definition from here.

Also the maturity date on coronabonds could be far far further in the future. If Italy issued a 50 year bond would there be a demand for it? possibly not, but their probably would if it was a coronabond backed by the entire EU.

And now you are contradicting your own claims above that Italy alone would be responsible to pay it back. If a 50 year Italian bond is not of interest why would a Italian "Corona bond" be suddenly of interest? The answer is because the second one is not backed by Italy alone but the rest of EU.

I guess its all down to the terms and conditions agreed by the EU countries for these coronabonds, but I suspect some of the reluctance is not that countries end up paying other countries debts but more likely that some countries such as Germany, Holland etc, might lose economic advantage or have less control in the EU parliament and financial bodies.

Yea; it could not have anything to do with these countries trying to shove their borrowing over to other countries; of course not...

We need to work on a common debt instrument issued by a European institution to raise funds on the market," the nine countries wrote in a letter to European Council President Charles Michel, ahead of Thursday's video call summit of EU leaders.

These nine countries are prone to calling for the mutualisation of European national debts, while others — richer countries in the north of Europe — usually oppose such measures.

Let's be clear here; what's is proposed is that Italy, Spain etc. are to be allowed to borrow money and then put Germany etc. on the hook to repay the debt if they can't manage it. How in the seven hells does that sound like a good plan when Germany will be given ZERO input in how the money they are on the hook for will be used? It's like me going to you and saying hey I've co signed this loan for a million euros, I'll promise to pay it back don't worry about it as I got a sure fire business plan and you got zero input in if you wish to sign up or not. Either the countries agree that EU manages their finances (that means setting their budget limitations, sorting out borrowing etc.) OR the countries keep the control and sort out their own finances; anything else is a recipe for disaster as you're encouraging frivolous spending (you're not on the hook to pay it back) and punishing those who're managing their economies instead.

Kermit.de.frog · 09-04-2020 2:32pm

efanton wrote: »

Surely what Italy and Spain are looking for is to be able to borrow at the same rate as Germany.

They have not earned the right to.

They can borrow at rates the market deems suitable for how they run their economies.

They are not entitled to borrow at German, Irish or Dutch rates.

beggars_bush · 09-04-2020 8:25pm

The EU will need a Marshall Plan type stimulus after this crisis to get economies back up and running

noodler · 09-04-2020 11:37pm

Cheaper borrowing agreed.

Pretty much just the ESM in principle tho.

GT89 · 09-04-2020 11:38pm

All debt should be wiped after this at the end of the day it is only figures on a computer screen

Danzy · 09-04-2020 11:41pm

Eric Cartman wrote: »

The last thing us and most of Northern Europe want is corona bonds or similar. Germany is heavily resisting them as it would basically make us , Germany , and the other rich countries in Europe liable for that debt. Bailing out the likes of Spain and Italy is absolutely not what Ireland needs or wants and will just exacerbate the problem.

As for the bonds we issued on the market, I think the 6 billion is more intending to use them as a cashflow gap until such time as the ESF / ECB funds come through. I don't think we want to be out to the markets on low yield bonds to finance all of this.

Not bailing out countries got hard will see the end if the Euro, never mind the EU.

The resistance to the bonds shows that talk of EU solidarity, shared currency, shared economy is horse shi5.

That the Dutch and Germany have been gratuitously insulting to countries hit hard only makes it personal.

Danzy · 09-04-2020 11:44pm

Kermit.de.frog wrote: »

They have not earned the right to.

They can borrow at rates the market deems suitable for how they run their economies.

They are not entitled to borrow at German, Irish or Dutch rates.

The EU better be careful that hard market realism doesn't bite it on its ass.

The prevailing view given so far is that Euro solidarity is for good times only and that they won't do what it takes to protect the economy and currency.

Nijmegen · 09-04-2020 11:51pm

Irish policy is to advocate for Eurobonds because the Irish civil servants advising politicians were around when markets turned on us like a light switch and we got ridden into the ground as a country by events, some of which were the result of our bad decisions and some of which were bad luck in global affairs.

The prudent policy of the Irish government is to assume that we will not be able to borrow at 0.2% forever.

noodler · 10-04-2020 1:16am

Danzy wrote: »

Not bailing out countries got hard will see the end if the Euro, never mind the EU.

The resistance to the bonds shows that talk of EU solidarity, shared currency, shared economy is horse shi5.

That the Dutch and Germany have been gratuitously insulting to countries hit hard only makes it personal.

Ridiculous.

Despite all the profligacy of some countries, ultimately the continent keeps bailing out other countries.

That's ignoring the billions upon billions redistributed on an annual basis through the cap and structural funds.

Nody · 10-04-2020 7:57am

Danzy wrote: »

Not bailing out countries got hard will see the end if the Euro, never mind the EU.

The resistance to the bonds shows that talk of EU solidarity, shared currency, shared economy is horse shi5.

That the Dutch and Germany have been gratuitously insulting to countries hit hard only makes it personal.

Italy, Spain etc. are the once refusing to have a shared economy; they refuse that there are ANY requirements on any money they get to loan. If they really wanted a shared economy they would welcome such oversight but instead Italy keeps whining about how EU should have nothing to do with how they spend their money. As I said earlier; you either have EU controlling both the borrowing and the countries budgets or you have the countries doing the borrowing and controlling the countries budgets but you'll never have EU doing the borrowing and the countries controlling the budgets.

Geuze · 10-04-2020 11:21am

GT89 wrote: »

All debt should be wiped after this at the end of the day it is only figures on a computer screen

Debt is matched by savings.

If countries repudiate their public debt, then all the savers who lent to the Govt lose out.

That includes 1m+ savers in Irish credit unions.

theguzman · 10-04-2020 5:03pm

The EU will not survive this nor will the Euro.

BorneTobyWilde · 10-04-2020 5:27pm

Eh why isn't China made pay???? IN life those who are responsible pay for their mistakes? Why should we pick up the bill ?

coolshannagh28 · 10-04-2020 5:34pm

theguzman wrote: »

The EU will not survive this nor will the Euro.

The lack of solidarity at peak crisis should ensure this .

Government Borrowing during Covid-19 crisis

Comments