The discussion surrounding the European Union’s assumption of joint debt, commonly known as Eurobonds, is causing divisions among liberal economists. While Michael Hüther, director of the employer-focused Institute for the German Economy (IW), advocated for issuing more EU bonds to fund specific investment goals, two other prominent academics have offered dissenting views.
Professor of Economics Justus Haucap, based in Düsseldorf, told the publication “Spiegel” that although the decline in confidence in the US dollar is observable, this trend does not constitute an argument in favor of greater EU borrowing. He pointed out that individual EU member states already diligently issue sovereign bonds, noting that Germany’s specialized investment funds offer ample opportunities for bond investors. However, Haucap believes that Eurobonds carry interest rates that are unattractive from a German perspective. Ultimately, he argues that the Federal Republic would end up paying for this through higher interest costs for the EU. Furthermore, he notes that Eurobonds would factually lead to increased borrowing, presenting a cyclical problem: the massive debt of the United States is, in part, responsible for dollar weakness. He is highly skeptical that additional debt, particularly amidst persistent growth weakness, will elevate the euro to the status of a leading currency.
Clemens Fuest, President of the Ifo Institute in Munich, similarly told “Spiegel” that the goal of establishing the euro as an international leading currency is not a convincing justification for issuing more mutual European bonds. He contrasted the EU with the United States, stating that the US is a political entity possessing immense military and technological power-a status the EU has not yet achieved. Consequently, he deemed it unrealistic to expect the euro to become a global benchmark currency simply through common European bond issues. Fuest cautiously suggested that large-scale bond issuance might only be considered once the EU possesses a level of political capability comparable to a geopolitical governing body. He concluded that political integration must precede any sensible discussion about Eurobonds.
Over recent years, the EU has issued more than 820 billion euros in joint bonds, primarily for the recovery and restructuring fund known as Next Generation EU. The question of whether Brussels should repay this debt, replace it with new bonds, or simply expand it, continues to divide member states. IW Chief Hüther, however, utilized the weakness of the US dollar to argue that the euro could be built into a serious alternative currency through the use of common EU bonds.
