BRUSSELS (MNI) – A proposal for a “European Redemption Pact” — in
which EU countries without bailout programs would transfer the portion
of their government debt that exceeds 60% of GDP into a common fund —
will be central to the European Commissions’ recommendations on jointly
issued bonds, a senior Commission official said on Tuesday.
Under the scheme proposed by the German Council of Economic
Experts, knowns as the “Wise Men,” countries participating in the fund
would have to make a binding pledge to redeem their debt over 20-25
years with convincing measures such as earmarked national tax revenues.
“It will be one of the proposals at the center of our
recommendation,” the head of the Commission’s economics directorate,
Marco Buti, told the European Parliament’s economics committee.
The concept was not prominently mentioned in a discussion paper
sent by the Commission to EU governments last year, but that was only
because of its late development, the official said.
Some policy-makers and observers, including the Commission, argue
that jointly issued bonds, or “Eurobonds,” would strengthen economic
convergence in the Eurozone and help struggling countries. But others
fear it could leave taxpayers in fiscally prudent countries on the hook
for borrowing by less disciplined governments.
EU governments are studying the various proposals for Eurobonds and
will soon send their comments to the Commission.
Another idea that has gained some traction among EU policymakers is
the “blue bond, red bond” proposal, under which a percentage of
participating countries’ bonds would enjoy the collective backing of
other governments while the rest would be backed by individual countries
alone.
–Brussels bureau: +324-9522-8374; pkoh@marketnews.com
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