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It appears that a "Project Eurobond" for the pandemic recovery has now been agreed by France and Germany - EUR500bn in new debt back proposed directly by the EU budget (i.e. not ESM style by member state guarantees) - bundeskanzlerin.de/bkin-de/aktuel…
This is a really, really big deal deal, even if many may quip about the size of the fund. If approved by the EU27, this proposal would set the precedent for "joint expenditures for joint struggles", which is the definition of a "Hamiltonian moment" in Europe. Crucial 2/n
precedent being set is that EU countries can issue joint debt to fight a common problem (recall that Hamilton "merely" consolidated US states' war debts). This time it took a historic pandemic to reach this agreement - next time, however, the threshold may be lower and 3/n
political leaders may simply decide that a particular problem - say climate, refugees, natural disasters - facing Europe is best solved by (more) joint debt. A crucial red line in fiscal integration may just have been breached in the EU. ENDS
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Jacob F Kirkegaard
@jfkirkegaard
Some thoughts on the rumored "just like Xmas, we'd all like to go (stay) home for Easter, too" deal in the EuroGroup. 1) Headline figure of almost EUR500bn is a good downpayment, even if it includes "hypotheticals" (ESM) and leveraged instruments (EIB). 2) Compoments known 1/n
EIB - EUR25bn (EUR200bn with leverage); EC SURE - EUR100bn; ESM creditline of apparently up to EUR240bn(?) + and some voluntary medical supplies. 3) Key milestone is the agreement on @ESM_Press creditline, which sets precedent for European backstopped financial assistance in 2/n
joint crisis/exogenous shock with the ONLY conditionality that the resources be spent in a earmarked manner towards the crisis (shared problem). 4) Few if any MS will take any money from @ESM_Press, given @ecb PEPP program, so this is an OMT-like offer; 5) Key though is the 3/n
Read 5 tweets
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Jacob F Kirkegaard
@jfkirkegaard
Tonight's @EUCouncil was a YUUUGE disappointment, but thanks to @ECB all is not yet lost for Europe. Several things must be clear though on the path ahead; 1) The PEPP is mutualization of #Covid19 related expenses onto the @ECB balance sheet for a VERY long time. Means MS 1/n
now has the capacity to do what they need to do to save lives for as long as the emergency lasts. This makes the ESM frankly redundant for now - unsurprising since it was never designed to bailout a large MS (OMT for that) and much less deal with a symmetric EA-wide shock 2/n
Get over it @MinPres! It is also less clear that a "Healthcare-Focused Corona-Bond" is really useful now, as 9 heads of state/gov suggested. Again - let the ECB do its job and start worrying about how the recovery can be made symmetric - that is when new joint instruments 3/n
Read 10 tweets
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Jacob F Kirkegaard
@jfkirkegaard
Europe's "Hamiltonian Moment" Must Be Now! A short thread.
EU econ forecasts are quickly being revised to the Covid19 reality of maybe 15+% drops in GDP in 1H 2020. This from a perfectly exogenous shock that no member state had any culpability in, invalidating any claim of 1/n
"legacy issues" or moral hazard. The fiscal costs of #covid19 are instead coming from a shared - to quote Macron - "war experience" across Europe. This makes this moment in European history quite similar to the US in 1790, as Alexander Hamilton struck a deal to let the 2/n
new US federal government assume the debts of the US states, which had almost all been incurred in pursuit of the shared endeavor of the US War of Independence against the UK. It was this political fact - costs of a shared experience and not decades of an individual US state 3/n
Read 14 tweets

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