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EU Debt as Insurance Against Catastrophic Events in the Euro Area

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EU Debt as Insurance Against Catastrophic Events in the Euro Area

The Key Questions and Some Answers

Bruegel,

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European Union debt could help member states handle the costs of the coronavirus pandemic.

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Policy makers in the European Union’s member countries must walk a fine line between inaction and misdirection in their search for a way to combat the economic malaise wrought by the coronavirus. EU-issued debt could serve as an effective, temporary backstop to bring some degree of relief to the region’s economies. As this astute analysis from economist Guntram B. Wolff reveals, this insurance instrument should derive from EU institutions rather than from national governments. Such an approach would be more politically viable, no small feat in the rough-and-tumble obstacle course that is the European Union.

Summary

The issuance of EU debt could provide a viable insurance mechanism by which to manage the sharp economic declines that the coronavirus has caused member states.

European leaders are scrambling for ways to alleviate the region’s severe economic woes from fighting the COVID-19 pandemic. A potential tool could be EU debt, even if the euro area’s taxpayers and national budgets would be on the hook.

The use of supranational debt would necessarily be a collaborative effort, requiring member states to cede control over income and expenses to a certain degree. With some work, the pursuit of this solution through the EU Treaty could be a possible way to restore stability to the macroeconomy.

The use of debt...

About the Author

Guntram B. Wolff is the director of Bruegel, a European think tank.

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