(Original title: German Chancellor supports EU joint bond issuance? The news is flying in the sky and I will start Tai Chi)
Financial Associated Press, October 11 (Editor Ma Lan)On Monday, some media said that German Chancellor Scholz would reverse his attitude and support the EU’s issuance of joint debt to deal with the energy crisis. The yield spread between Italy’s 10-year bond and Germany’s 10-year bond narrowed to 225 basis points at one point on the day.
It is said that Germany’s spending of 200 billion euros to deal with the energy crisis has caused dissatisfaction among EU countries. Many member states have criticized its overly generous spending plan will undermine the balance of the EU and exacerbate energy shortages in weaker countries.
This outrageous behavior is also one of the reasons Scholz changed his stance on joint debt.
During an EU summit last week, Scholz offered to use co-borrowing to help member states out of trouble, but the request was in the form of loans, not grants, according to people familiar with the matter.
But later on the same day, a German government source revealed that Germany has no plans to support the EU’s joint bond issuance. “The government is not aware of such a plan.”
Scholz himself avoided answering questions about the joint bond issue at the EU summit on Friday, but stressed that there are still parts left in the Covid-19 recovery fund and resources available.
How to plan for joint bond issuance
The SURE program during the pandemic will provide a blueprint for the new joint bond issuance, but the details of the new program have not been finalized, but it will be less than the 724 billion-euro coronavirus recovery fund launched in 2020, sources with knowledge of the bond issuance said.
It would be a dramatic turnaround for Germany to issue a joint bond. Previously, countries such as Germany and the Netherlands insisted against such measures, arguing that they would not help solve energy shortages, but instead further aggravate inflation.
But with concerns rising sharply within the EU and dissatisfaction with other member states over Germany’s 200 billion euro aid, Germany had to consider the proposal.
So far, neither Scholz himself nor the federal government spokesman has given a clear answer to this. The government spokesman said that there is still a large amount of funds available or being raised at the European level, but the possibility of joint loans is not ruled out.
Another person familiar with the matter said Scholz was reluctant to give the green light to new debt financing as he also had to consider a final German Supreme Court ruling on the constitutionality of the coronavirus recovery fund.
German judges suggested in April 2021 that if the measure was a one-off, joint issuance of EU debt to fund grants from member states in an emergency could be constitutional.
On the other hand, another reason for Scholz’s caution is uncertainty about Italy’s new right-wing government, according to people familiar with the matter. Its new prime minister, Meloni, claimed to be in power with a moderate party, but also said he would adjust Italy’s new crown epidemic recovery plan.
Scholz may want to see Italy’s government plans first and discuss European integration with Meloni before arranging further joint debt financing discussions.