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An Effective Response to Europe’s Fiscal Paralysis

Nov 30, 2020 George Soros

With Hungary and Poland vetoing the European Union's budget and COVID-19 recovery fund, the case for issuing perpetual bonds has never been stronger. While the EU cannot currently do so, given uncertainty about its future, many of its member states can and should.

NEW YORK – I have written a lot in the past about the desirability of the European Union issuing perpetual bonds. But today I am proposing that individual member states should do so.

Right now, it would be impossible for the EU to issue perpetual bonds, because the member states are too divided. Poland and Hungary have vetoed the next EU budget and the COVID-19 recovery fund, and the so-called Frugal Five (Austria, Denmark, Finland, the Netherlands, and Sweden) are more interested in saving money than in contributing to the common good. Investors will buy perpetual bonds only from an entity that they believe will continue to exist for the foreseeable future. That was true of Britain in the eighteenth century (when it issued Consols) and of the United States in the nineteenth century (when it consolidated individual states’ debt). Sadly, it is not true of the EU today.

The EU finds itself in a very difficult situation. It is experiencing a second wave of COVID-19 that threatens to be even more devastating than the first. Member states used up most of their financial resources fighting the first wave. Providing health care and resuscitating the economy will require much more than the €1.8 trillion ($2.2 trillion) in the new budget and recovery fund, called Next Generation EU. In any case, the availability of those funds has been delayed by Hungary and Poland’s veto.

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Correction Nov 30, 2020 16:46UTC

In the second paragraph, Germany has been replaced by Finland in the Frugal Five.

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George Soros

Writing for PS since 1997
118 Commentaries

George Soros is Chairman of Soros Fund Management and the Open Society Foundations. A pioneer of the hedge-fund industry, he is the author of many books, including The Alchemy of Finance, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means, and The Tragedy of the European Union: Disintegration or Revival? His most recent book is In Defense of Open Society (Public Affairs, 2019).

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0 Comments on this paragraph, 12 Comments on this article

Henk Crop Dec 2, 2020

It is not bad when EU members help each other in times of trouble, but what is wrong here is that:
- the proposal is unlawful
- the EU interferes automatically with internal matters
- at a time we want less EU, a proposal for more EU is presented
- an nontransparent and overly complex proposal is presented. Just another Brussels swamp.
- it is not clearly defined what kind of support will be served by the fund
- the fund, proposed by France, has been shaped like the money transfers the Northern members are so opposed to.
- supervision on the spending of the Fund should not be by the EU commission or the ECB.
They also dream about money transfers. It should be supervised by an independent committee of investors from Northern members. If the funds will not be fully used, the remainder should be returned to the creditors.
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gridhungary gridhungary Dec 2, 2020

The latest Soros proposal might be welcome most by Poland and Hungary because it forgets about the RoL tied to the perpetual bond agreement originally.

Thanks for the ingenuity of Mr. Soros.

Technically it means that 7 countries (Frugal Fives+Hu+PL) are dropping out of the whole bussiness. They are parcticably pains in the neck of that anyhow.

If we are listing up the most devastated countries, our list looks like:
Greece (EL)
Spain (ES)
Portugal(PT)
Italy (IT)
Cyprus (CY)
Slovenia (SI)
Croatia (HR)

The rest of the participators are:
Belgium (BE)
Lithuania(LT)
Bulgaria (BG)
Luxembourg (LU)
Romania(RO)
Czechia (CZ)
France (FR)
Malta (MT)
Slovakia (SK)
Germany(DE)
Estonia (EE)
Ireland (IE)
Latvia (LV)

An open question is now which of these (the 13 guarantors + the 7 debtors) countries feel themselves fortunate enough to be able to issue perpetual bonds in their own names.

Respectable is the vision of Mr Soros how he trusts in the solidarity and accord of EU. I wish that becoming true.
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Keleti K Dec 1, 2020

This is an ill, anti democratic and dangerous proposition. EU must be very careful with George Soros.
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Sivasubramanian Muthusamy Dec 1, 2020

Perpetual Bonds is a great idea, but why restrict the proposal to heal Europe when the pandemic is global? As far reaching it is, it is still band-aid for recovery, it is not immortality, nor restoration of youth. And, even for Europe, how would a trillion help when it is an economy of a 20 trillion dollar gdp, which has grossly suffered for a year, another year or two to 'recover' if conventional economic thinking remains? Could there be a new economic thinking for renewal, worldwide, away from the present mindset of fear of hyperinflation, which may be irrelevant when a responsive economic measure (with related, necessary corrections) are global, not regional, not national?
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Luca Beltrametti Nov 30, 2020

I wonder if by buying perpetual bonds the ECB would infringe the art. 104 of the Maastricht Treaty preventing monetization of debt. Is the purchase of perpetual bonds equivalent to the promise of a perpetual re-purchase of new ordinary bonds when the bonds that the ECB holds come to maturity?
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Henk Crop Nov 30, 2020

The 750 billion Euro recovery fund is a violation of the EU law, which stated that members would keep their debt at 60 % of GDP.
I have no opinion about what the violations of the law in Poland and Hungary are.
But the recovery fund has been proposed and requested, in an intimidating way, by France and Italy is also a violation of the law.
The latter violation will have much more impact on the EU than the first one and should be treated as such.
This is in particular embarrassing for France and Italy, as the two are founding members of the EU. They ought to give an example of lawful behavior.
It's good news that the introduction of the recovery fund has been blocked, and it should be kept that way.
- Emanuel Müller Nov 30, 2020
  
  There is never anything wrong with violating your own laws except for credibility considerations.
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B. Troer Nov 30, 2020

Thanks for name possible buyer. Life Insurence in civil understanding mean the .mil
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B. Troer Nov 30, 2020

Thanks for name possible buyer. Life Insurence in civil understanding mean the .mil
A new reply to this comment has been posted.

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An Effective Response to Europe’s Fiscal Paralysis

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Correction Nov 30, 2020 16:46UTC

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