永续债券之理由

Within a matter of weeks authorities will have to take decisions that will determine the fate of the European Union. The EU can either pull together and fulfill the expectations and aspirations of its citizens or it will continue to disintegrate.

Commission President von der Leyen said that the EU needed at least €1 trillion to fight against the novel coronavirus. She did not mention the fight against climate change which would need a similar amount. I believe that there is only one way such a large amount could be raised – by issuing perpetual bonds.

The European public and its leadership are not familiar with perpetual bonds, but they have a long history. Britain first issued consolidated bonds, or Consols, in 1752, and later used them to finance the Napoleonic and Crimean Wars, the Slavery Abolition Act, the Irish Distress Loan, and World War I. The United States Congress authorized issuing Consols in 1870 to consolidate the debts accumulated in the Civil War.

As its name implies the principal on a perpetual bond never has to be repaid; only yearly interest payments are due. A €1 trillion issue carrying a 0.5% interest would cost €5 billion a year to service. The €1 trillion would not have to be issued all at once; it could be sold in tranches. The first tranches would be snatched up by long-term investors like life insurance companies and as other investors familiarize themselves with perpetual bonds, they would eventually fetch a premium. In the current low interest environment, Germany was able to sell a 30 year bond at a negative yield.

The ratio between the amount of annual interest paid and the amount received is 1:200. Of course the interest has to be paid annually but the present value of future payments is continuously declining and eventually approaches but does not reach zero. €5 billion is a paltry amount to pay for a €1 trillion that are urgently needed. It constitutes about 2.5% of the last European budget and little more than 1% of the next budget currently under discussion.

Yet perpetual bonds were not given any serious consideration at the April Summit. Spanish Prime Minister Pedro Sanchez proposed the idea but he was ignored. The discussion focused on the monies that could be raised by increasing the size of the next budget. After the meeting President von der Leyen started talking in terms of billions, not trillions. Something seems to have gone grievously wrong.

My guess is that the idea of issuing perpetual bonds was dismissed because it is a novelty that did not exist when the Treaty on the Functioning of the European Union (TFEU) was compiled. But exceptional circumstances require exceptional measures. They should not be issued in normal times.

If the EU is unable to consider them under the current exceptional circumstances it may not be able to survive the challenges it currently faces. This is not a theoretical possibility; it is the tragic reality. The coronavirus and climate change are threatening not only people’s lives but the survival of our civilization.

The European Union is particularly vulnerable because it is based on the rule of law and it is proverbial that the wheels of justice turn very slowly. By contrast, the novel coronavirus moves very fast and in unpredictable ways. That is why the EU needs to issue perpetual bonds.

I want to explain why perpetual bonds are needed in Europe today. They are not to be confused with coronabonds which have been discarded and with very good reason. Coronabonds are divisive; they reinforce the already gaping gap between North and South and they also create divisions between East and West, the new members and the old ones. By contrast, perpetual bonds are unifying. They provide financial resources to the EU and all its members that are incomparably larger than what the European budget can offer. They could help the EU to fulfill the expectations and aspirations of its citizens.

The cost/benefit analysis is so lopsidedly in favor of benefits that it opens up an amazing amount of fiscal space. If the EU issues bonds on its own account it can distribute money to the countries in greatest need as defined by the Commission and governments in accordance with mutually agreed rules and budgetary procedures. The additional spending would not require new legislation. The decision to issue perpetual bonds must be reached by the summer because without it Italy could be bankrupt by the fall. That would be a tremendous blow to the EU.

Being able to allocate funds to those who need it most would open up tremendous possibilities. Most of the money would go to the Southern countries because they were hit the hardest. But they could be allocated to those who are most vulnerable. Caritas Europa, a Catholic charity just published a very interesting analysis about undocumented migrants working mainly in agriculture who live in abysmal conditions and create hot spots of infection. Add to them the Syrian and other refugees pushed out of Turkey into Greece and you have identified the main sources of infection. They don’t bring the virus with them, they catch it in the country of their destination because of the horrendous conditions in which they have to live. Regularizing their position would save not only their lives but also the lives of the general population by bringing the virus under control.

A trillion euros for fighting the novel coronavirus could actually accomplish its objective. And the same applies to a trillion euros devoted fighting climate change.

The case for issuing perpetual bonds is so strong that the burden of proof falls on those who oppose it. Yes, there is an element of mutualization but it pales into insignificance in comparison with the benefits it brings. There is very little time left to understand and appreciate the opportunity that perpetual bonds offer.