Economist Hans-Werner Sinn, former president of the Ifo Institute, has strongly criticized the push by Michael Hüther, director of IW Institute, to establish the Euro as a global currency through the utilization of new joint European sovereign debt. Sinn told “Die Welt” that a commitment of joint liability for debt is counterproductive because it leads to excessive borrowing. He added that legal restrictions cannot effectively contain the incentives driving this move. According to Sinn, the burden of debt will “come crashing down on us like a waterfall,” warning that if they are unlucky, Europe could merely replicate the second phase of American currency history and end up in a precarious situation similar to today’s United States.
Hüther, speaking to the “Handelsblatt,” previously argued that a larger Euro bond market could lower the financing costs for the entire currency union in the medium to long term, aside from any geopolitical gains. He specifically called on Germany to be open-minded about the idea, cautioning that policymakers should not immediately dismiss the term “Eurobonds.” Regarding the implementation of a corresponding European safe asset-one that retains nearly its full value even in severe crises-he suggested it would be a “long-term process spanning ten to 15 years.” Furthermore, his proposal does not require consolidating the state debts of all member countries; instead, a European Investment Union could focus on clearly defined projects, such as cross-border infrastructure, energy, digitization, or defense.
However, other economists quoted by “Die Welt” are skeptical of Hüther’s plan. Friedrich Heinemann, head of the ZEW research department for Corporate Taxation and Public Finance and an adjunct professor at the University of Heidelberg, stated that what Europe truly needs to advance the Euro as a world currency is a focus on growth, innovation, and bureaucratic simplification, not shared European debt. Stefan Kooths, director of the Forecasting Centre at the Kiel Institute for the World Economy (IfW), also opposed the idea. Kooths stressed that the issue of joint bonds-whether related to new debt or shared old debt-must be governed by fiscal criteria, not monetary ones. He stated that he could not find a sufficiently compelling fiscal justification for shared debt in Mr. Hüther’s initiative.
In contrast, Marcel Fratzscher, president of the German Institute for Economic Research (DIW), considers Hüther’s proposal worth serious consideration. Fratzscher argues that the European Union does indeed require common government bonds. However, he believes that the strengthened international standing of the Euro is only one of several minor benefits. He asserts that Europe needs joint taxes and joint bonds to better fulfill common tasks, particularly regarding investment in innovation, infrastructure, climate protection, and defense.
Volker Wieland, a Stiftungprofessor for Monetary Economics, advises on the growing number of proposals favoring shared European debt. He noted that former IMF chief economist Olivier Blanchard, along with hedge fund economist Angel Ubide, had also previously proposed similar measures. Wieland pointed out that both Blanchard and Ubide, like Hüther, pledge that shared Euro bonds would be more attractive for international reserves held by other states and financial institutions than German or Dutch bonds because there would be more of them. Yet, he remains dubious about whether Europe could successfully expand the Euro’s role as an international reserve currency or whether such measures would make any significant difference to interest rates.
