Eurobonds: A mirage for political unity within the Eurozone

Over the past decade the European Union (EU) has appeared to stand on the precipice of collapse, with the sovereign debt and immigration crises giving way to the rise of populist politics and Euroscepticism on the continent. Recently, pro-EU optimists have pointed to a changing political landscape, in light of the Covid-19 pandemic, as evidence of resurging Europeanism within the bloc, with member states moving from ‘an initial first-me response’ to a ‘politics of generosity’ (Jennifer Rankin, 2020.) Germany and Austria opened up hospitals to those from the worst afflicted countries whilst France assumed the role of donating masks so as to rectify the shortage in Italy (Rankin, 2020.) Such solidarity culminated, after extensive deliberations, in the announcement of a €750 billion EU Recovery fund to be financed via the issuing of Eurobonds.

In reality however, this was by no means the “Hamiltonian” moment yearned for by those who wish to see further federalism within the EU (Anatole Kaletsky, 2020.) Eurobonds only paper over the cracks that exist within the Eurozone as opposed to dealing with them and it is therefore imperative to address the long-term unsustainability of such a financing option for the recovery fund.

What are Eurobonds and how do they work?

Eurobonds are effectively a macro-economic instrument by which the EU’s member states share the risk of borrowing debt. The EU would issue these AAA-rated bonds on the private market and back the debt against the bloc’s national budget. The purpose of this financing option is to make borrowing cheaper for poorer nations with high debt-to-GDP ratios, such as Italy and Spain, since the risk of defaulting is shared with the wealthier Eurozone countries with low debt levels.

Underlying Euroscepticism still lurks

It would be foolish to assume that the renewed co-operative spirit at the EU level has vanquished Euroskepticism and populist politics alike. In France, for example, it is difficult to interpret Emmanuel Macron’s Presidency as a symbol for an overwhelming pro-European sentiment when those life-long Eurosceptics, such as Marine Le Pen and Jean-Luc Mélenchon, remain prominent political actors within the region (Politico Europe, 2020.) Meanwhile, the shift in Germany’s political momentum, which has seen Chancellor Angela Merkel rally in the polls, can easily be attributed to the way in which the crisis has advanced the appeal for rational political leaders. However, it is difficult to conclusively extrapolate this phenomenon to the post-recovery period; especially since the Christian Democrat’s gains have stalled as Europe moves on from the peak of the pandemic (Politico Europe, 2020.)

Furthermore, the malcontent of the “frugal four” (Denmark, Austria, Netherlands and Sweden) for a system of joint debt is striking. During the Eurogroup meeting in late March, Dutch Finance Minister Wopke Hoekstra was the source of controversy as he revived the “Southern Sinners” rhetoric that has long alienated the poorer member states within the bloc. His comments were met with a vitriolic response by the Italian and Portuguese governments, illustrative of the prevailing rifts that have defined the Eurozone since the sovereign debt crisis a decade prior (Alex Katsomitros, 2020.) The resulting recovery plan was one designed to accommodate the more austere values of the frugal nations, entitling member states to halt financial flows to countries deemed to be dishonouring budgetary commitment (Jim Brunsden, 2020, pp. 1.) The inherent distrust between factions within the bloc remains evidently profound and should not be disregarded in spite of this “landmark” agreement.

The Long-term problems of fiscal mutualisation

The substantial degree of fiscal mutualisation inherent within the establishment of Eurobonds will, most plausibly, only serve to re-empower Euroscepticism and far-right politics for two reasons. In the first place, risk-sharing can easily further rifts between member states and push nations back towards a “politics of me first.” This is of serious concern, owing in no small part to the reluctant spirit with which the frugal member states agreed to the conception of Eurobonds. Joint debt issuance is not politically viable when distrust guides policy-making.

Secondly, the repayment of the grants portion of the debt poses significant challenges for national sovereignty on the continent. Although a lack of clarity remains as to how exactly the repayment will be financed, preparations have seemingly paved the way for the transfer of considerable fiscal powers to the supranational level. Most notably, the EU’s plastic tax is to be introduced in 2021 whilst suggestions have already been forwarded for a new common corporate tax base and Financial Transactions Tax (Stanislas Jourdan, 2020; Raluca Enache, 2020.) It is highly conceivable that these emerging spill-over effects will be met with resistance in the post-recovery period as member states develop a malcontent regarding the loss of fiscal sovereignty. One may, for example, take the case of Ireland. Ireland possesses a national debt level at 57.4% of the annual GDP compared to that of Italy with a debt-to-GDP ratio of 134.7% (Eurostat, 2020.) Under a system of Eurobonds, Ireland will be borrowing at a higher interest rate than usual so as to accommodate the fiscal needs of southern member states such as Italy. However, Ireland will still be subjected to a new common corporate tax base that would predictably involve a significant divergence to the nation’s current tax structure, which at 12.5% is the lowest in the EU (IDA Ireland, 2020.) Thus, the prospect feasibly exists that wealthier member states will vehemently resist the transfer of fiscal stabilisers to the EU over the next few years, strengthening the narrative of Eurosceptic political groups that have long been gathering momentum. Nor are wealthy member states of only concern. One need merely look as far back as the rise of the Five Star Movement in Italy in the wake of the Eurozone crisis to witness the general influence of Euroskepticism and populism amongst a disenfranchised electorate (Julian Coman, 2018.)

Ultimately, the EU lacks the social and economic symmetry necessary for further integration and, hence, fiscal integration and debt mutualisation may pose more problems than solutions for the cultivation of Europeanism in the long-term.

Concluding remarks

It is therefore a necessity for the architects of further European integration to consider policy-making in the long-term. Eurobonds are very much a short-term fix that seize the opportunities presented by a revived European spirit, but do little to resolve prevailing divisions within and amongst member states. If anything, they quite evidently possess the capacity to precipitate further strife and unrest within the region. Policy-makers must recognize that they have merely bought themselves time and that complacency may well prove detrimental for the union.


Brunsden, Jim, Brussels gains unprecedented power to borrow on financial markets: Oversight of EU recovery fund was contentious topic at four-day summit, Financial Times, pp. 1-3, 22/07/2020, [retrieved from]

Coman, Julian, ‘Italians first’: how the populist right became Italy’s dominant force, The Guardian, 01/12/2018,

Enache, Raluca, EU Recovery Package- Plastic Tax, KPMG Tax Centre, 15/09/2020,

Eurostat, General government gross debt- annual data, 09/10/2020,

IDA Ireland, Ireland’s Corporate Tax Rate, 2020,

Jourdan, Stanislas, EU Recovery Fund: Big Decisions, Small Stimulus, Positive Money Europe, 23/07/2020,

Kaletsky, Anatole, Europe’s Hamiltonian Moment, Project Syndicate, 21/05/2020,

Katsomitros, Alex, The significant impacts an EU recovery fund would have, World Finance, 03/09/2020,

Politico Europe, Polls of Polls, France-2022 presidential election voting intention, Politico, 10/10/2020

Politico Europe, Polls of Polls, Germany- National parliament voting intention, Politico, 10/10/2020,

Rankin, Jennifer, Coronavirus could be final straw for EU, experts warn, The Guardian, 01/04/2020, 

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