Dutch opposition to Corona bonds explained: The Covid-19 pandemic has given Europe almost more than it can handle. It was inundated with the task of controlling the spread of the virus, ensuring that millions of its citizens follow government-mandated guidelines to stay indoors and come up with unprecedented measures to mitigate continuing economic damage, and now it seems that there is still a dilemma to be added: who is going to pay for it in the end? Now that the crisis seems to be abating, those taking advantage of their eurozone take-up wonder: are we going to split the bill? A likely proposal is the so-called “corona bond”, but a growing number of countries – including the Netherlands – are already rebelling.
What are corona bonds?
Corona bonds, proposed by leaders of the European Union at a video conference on March 26, are a newly created sovereign debt instrument that would be supported by all euro area members to fund the recovery from the COVID-19 pandemic. Ultimately, corona bonds would lower financing costs for some of the hardest-hit countries in Europe, releasing crucial resources that would allow them to invest in public health and economic recovery, with the overall focus on preventing a new sovereign debt crisis.
Corona bonds: Not all EU members are on board
Under the proposal, corona bonds would provide the effective, unified response that characterizes the shared ideology and collective accountability of EU Member States leaning towards the euro area. But any sentiment that may have been sparked did not last long, as the idea of such solidarity was immediately rejected by the “thrifty four” countries – the Netherlands, Austria, Germany and Finland, as this solidarity would pose a moral hazard. ** On the other hand, the countries that are for corona bonds – Greece, Belgium, Spain, Portugal, Ireland, France, Luxembourg, Italy and Slovenia.
Corona bonds: Why are the “frugal four” so reluctant?
The opposition of the frugal four countries stems from the beginning of an age-old struggle for debt distribution in Europe between the northern and southern countries. Vestle’s news writers have learned that Germany and the Netherlands are the two most outspoken opponents of the group, two governments that depend on precarious political alliances that can become upset if they support the debt distribution. *** But perhaps the strongest argument of the thrifty four against corona bonds is simply that they don’t believe they should be responsible for clearing other countries’ backlog, considering collective debt as a fragile political issue that leads to could lead their taxpayers to pay the bill.
As you would expect, this decision has received a lot of criticism, but some analysts, such as CEO of Quadra Global Capital Corp. Perry Anderson, see it on both sides and say that if the euro zone is to “join forces and look at it together, this would spread the risk and reduce the risk of systemic failure. However, fiscally responsible countries would argue that this is at the expense of countries that have previously successfully managed their respective budgets.
What is on the menu now?
At the moment it is difficult to deduce what can happen next. As it stands, the Netherlands – like the rest of the “thrifty four” – will not give in to their views, but in the meantime the Corona bond proposal seems to be able to be updated as there are five more countries – Cyprus, Latvia, Lithuania, Estonia and Slovakia which can be added to the Eurobond proposal. ** Could this increase the chances of success without the thrifty four, or will it just mean more weeks of negotiations? Time will tell.
Corona bonds: Explained
Given how unprecedented everything seems to be related to COVID-19, from near-global lockdown to new measures like corona bonds to cushion the economic impact, investors are looking for financial sites like Vestle news for updates. Although the Netherlands, with just over 36,000 cases and 4,566 deaths ****, was not as severely affected as countries such as Italy (more than 201,500 cases and more than 27,000 deaths) *****, the economy still experienced moments of volatility, which can be measured using the AEX index (the Dutch instrument 25 at Vestle). The year started off fairly calmly, and the index fell 35.6% in one month between February 17 and March 16, and steadily increased by 20.2% in two weeks between March 23 and April 7.
This form of market instability can present both risks and opportunities for informed investors who trade Contracts for Difference or CFDs