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02.04.2020 7 EDITORIAL BusinessToday is published every Thursday. The newspaper is a MediaToday publication and is distributed to all leading stationers, business and financial institutions and banks. MANAGING EDITOR: SAVIOUR BALZAN EDITOR: PAUL COCKS CONTRIBUTING JOURNALIST: MASSIMO COSTA BusinessToday, MediaToday, Vjal ir-Rihan, San Gwann SGN9016, Malta Newsroom email: bt@mediatoday.com.mt Advertising: afarrugia@mediatoday.com.mt Telephone: 00356 21 382741 I s a Eurobond what the European economy needs now? It depends on which side of the fence you are. If like Italy, you already face government debt of some 138% of GDP, the fast access to liquidity to keep up public spending is crucial in the corona- virus pandemic that has shut down the economy. If, on the other hand, you have enjoyed a surplus economy just like Germany's, taking on liability for another spendthrift country's debt is an uncom- fortable proposal. Yesterday, Malta's finance minister Edward Sciclu- na suggested that while Malta is non-committal on a Eurobond requested by nine member states (Italy included), he cautioned against taking joint liability for the debt of other countries. In this latest round of European disagreements, Belgium, France, Italy, Luxembourg, Spain, Por- tugal, Greece, Slovenia and Ireland want a 'coro- nabond' to help them secure long-term financing to counter the damage of the pandemic. Malta ap- pears non-committal on the eurobond, with north- ern countries like Germany and the Netherlands leading the staunch opposition of the debt instru- ment. Arguably, Malta is going to wait to see which team gains the upper hand before taking a side on such a major political decision that transfer sover- eignty to Europe on such a fiscal measure. But Scicluna clearly prefers other routes rath- er than a Eurobond, for such debt mutualisation would mean that Malt becomes jointly and sever- ally liable to debts of another country. "Malta may go as far as accepting liability up to a particular share of the outstanding EU debt but not beyond," finance minister Edward Scicluna said, echoing the cautious stand of countries like Germany who fear that other EU member states are free-riding on its fiscal prudence. Clearly, in the unprecedented situation of the coronavirus shutting down parts of the European economy, there is a strong argument for all mem- ber states to be in harmony for this debt, after It- aly launched a €25 billion fiscal stimulus, with its government deficit expected to surge as the econo- my contracts sharply. ere is no doubt that a sub- stantive Eurobond would go far in helping member states afflicted by austerity. As the nine member states said, a coronabond would strengthen the EU and the Economic and Monetary Union and provide the strongest message to ur citizens about European determined cooperation and resolve to provide an effective and united response. Scicluna however suggests that Malta is not will- ing to take up the debt for other countries. "With financial borrowing the story is much more compli- cated. When we chipped in the past financial crisis's bailout, we contributed about 3% of GDP, a rather high figure – but at least it was capped. It was not open-ended. We cannot be in favour or against a Eurobond unless the details of this bond are given." Malta prefers credit lines from the European Sta- bility Mechanism (ESM) – the eurozone's rescue fund – where loans would be 'conditioned'. Unlike Eurobonds the credit would be available and used for specific purposes in the interest of the creditor countries providing the capital and the guarantees. A quicker route to a fiscal stimulus could come from the European Central Bank, which announced it would buy €750 billion in public and private-sec- tor securities that can be used flexibly. In practice, as the chair of Société Générale Lorenzo Bini Smaghi has written, it's more compli- cated, and Scicluna himself says it depends on the way such a Eurobond is designed. When this debt is issued by the European Invest- ment Bank or European Central Bank, such bonds come with a high credit rating for banks to consid- er them as "safe assets". As in the case of Maltese bonds, these government bonds are guaranteed by the government's ability to finance the repayment through tax collection and its own assets. So how does the EU guarantee this high credit-rating when it has no EU fiscal authority to guarantee it? Sec- ondly, will the Eurobonds be used to finance invest- ments or current expenditure? e former would represent the guarantees for such debt repayment. e European Stability Mechanism has already issued bonds for Spain, Portugal, Greece and Ire- land, with an additional €400 billion on the basis of its capital. But such loans come with conditions for European economies, which could mean fur- ther conditions of austerity for certain countries, and make life worse for Europeans – a replay of the Greek tragedy of 2015. Bini Smaghi has suggested that the solution could be first, a special ESM facility that comes with con- ditions on how the money is used; and secondly, encouraging also countries with sound economies to make use of the facility. Importantly, he asks whether member states are ready to allow ESM aid to come "with fewer strings and less stigma… ese choices must be made explicitly and explained to the public. Otherwise it is useless, and illusory, to talk about Eurobonds." EU cannot repeat 2015 mistake

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