EU debt as insurance against catastrophic events in the euro area: the key questions and some answers

European Union debt can provide comprehensive insurance against the COVID-19 pandemic and can enable a macroeconomic response, even though EU debt is a liability for taxpayers in EU countries and therefore indirectly for national budgets. To establish it, countries will need to give up control over some spending and some revenues. To be politically sustainable, that control should not be intergovernmental but be grounded in EU institutions. The EU Treaty offers some possibilities, but treaty change might ultimately be necessary. Democratic legitimacy is at the core of the debate.

The idea of a European COVID-19 pandemic recovery fund (to be discussed by EU heads of state on 23 April) has triggered a heated debate on joint borrowing. This blog post clarifies some of the concepts at the heart of this debate, concluding that EU debt to cope with the consequences of this crisis would tremendously increase the stability of the euro area. EU debt for the temporary catastrophic shock would provide effective insurance but multiple issues need to be solved. EU leaders should agree on multiple European Council meetings to solve them.

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