European Community Bonds since the Oil crisis: Lessons for today?

The history of joint European bond issuance has been largely forgotten. The authors show that bonds issued and guaranteed jointly by European states are not a novel instrument, but have repeatedly been issued since the 1970s. The issuance of one-off “Coronabonds”, as currently proposed, would not be unprecedented, but quite the contrary. The first European community bond was issued in 1976 to mitigate the adverse impact of the oil crisis, which threatened the viability of the European Economic Union. The funds were raised on private capital markets and then passed on to crisis countries, including Italy and Ireland. In the 1980s and 1990s community bonds were issued in favor of France, Greece and Portugal and, in 2008/2009, to support the non-Eurozone countries Hungary, Latvia and Romania. Moreover, the EFSF and ESM facilities were created after 2010 to support Eurozone members. The most important lesson from history is that, during deep crises, the European governments have repeatedly shown willingness to extend rescue funds along with substantial guarantees to other members in need. The necessary institutional arrangements were often set up flexibly and quickly. A second lesson is that the EU budget played a central role in past European bond guarantee schemes. Direct guarantees via country quotas were only the second guarantee tier, in case EU funds did not suffice, and only until 1981. Not coincidentally, the repayment of “Coronabonds” through an enlarged future EU budget is currently being discussed.