What is Corona Bonds and its importance?

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As the whole world is under complete lockdown due to COVID-19 or Coronavirus and each activity coming to a standstill, it’s extremely important to keep oneself updated with the current scenario and current burning topics. Today’s article deals with Corona bonds, which are in the news. Recently, the Italian Prime Minister Giuseppe Conte has proposed Corona bonds to be issued by the European Union (EU) to deal with a gloomy economy and alleviate Eurozone financial struggles amid the COVID-19 or Coronavirus crisis. European Union is aiming to start with a €540-billion emergency rescue package to underscore the difficult road ahead to chart the economic recovery from the coronavirus crisis. 

What are Corona Bonds?

Corona bonds is a collective debt amongst EU member states, with the aim to provide financial relief to Eurozone countries crippled by the coronavirus. The Corona Bonds funds would be supplied by the European Investment Bank, with the debt taken collectively by all member states of the European Union. Also, an emergency credit line will be opened to raise the lending capacity of the European Investment Bank and back the European Commission’s €100-billion unemployment insurance scheme.

Why Opposition to Corona Bonds By Some EU Countries

  • Not all countries in the European Union are in favour of Corona Bonds.
  • The idea of corona bonds has received reinforcement from nine EU countries like Italy, Spain etc. which have suffered huge death due to COVID-19 and are keen to reach a financial solution to meet this crisis.
  • However, there is some steep opposition to the idea of corona bonds. The resistance has come mostly from the ‘Frugal Four’ which consist of Germany, Netherlands, Austria and Finland member countries.
  • These countries believe that finance is an individual nation’s responsibility so each EU member state should keep their finances in order.
  • The idea of mutual issuance of debt has also drawn a lukewarm response from Berlin, Amsterdam and some other bloc’s members. 

Benefit of corona bonds?

The advantage of Corona Bonds is that they would allow European member countries to gain essential financial support. Each member state could receive economic aid without expanding its national debt and would also strengthen confidence amongst Europe if each EU member state showed a display of unity.

Some Issues Related To Corona Bonds

  • Corona Bonds would not only enhance debt sustainability but will aid future debt forgiveness, distinguishing between coronavirus related debt and legacy debt.
  • The implementation of Corona Bonds amongst EU member states could take a lot of time as all member countries need to come on the agreement table unanimously. Any delay is not ideal for countries who require access to funds immediately
  • The economic and political consequences of failure on Corona Bonds can hamper the post-pandemic recovery thus affect European solidarity.

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Anika
6 months ago

Thank you for simple explaining I appreciate your guidance.