ATHENS – Germany’s arguments against introducing Eurobonds, expanding the eurozone’s bailout fund, and instituting a comprehensive system of economic governance are transparent and easy to understand. But are they right?
The Germans fear that such innovations would lead to a rise in domestic borrowing costs, and to direct and indirect fiscal transfers to poorer countries. Moreover, they warn of the moral hazard generated by relieving over-indebted countries from the pressure to put their public finances in order. Third, they cite treaty-related and constitutional difficulties in establishing rules and procedures that would simulate a “fiscal union.” Finally, the need to move ahead with European unification in order to legitimize the inevitable infringement of over-indebted countries’ sovereignty might eventually infringe upon German sovereignty as well.