April 24, 2020 - (Gold Market Wire) - The virtual EU summit to discuss the issues surrounding a financial response to the “Corona-Crisis” has collapsed in acrimony.

Southern EU countries, especially Italy, have seen the crisis as a chance to push the consolidation of EU debt, while northern, less profligate countries, namely Germany, The Netherlands and Austria have dismissed the idea. Once again, the EU s beset by ructions over financial transfers from the north to the south, with France playing the champion of the latter group. At the heart of the matter is debt issuance – the issue that simply will not go away.

There is no mystery about what a Eurobond, a Covid-bond or any other type of "emergency" bond would entail. It would be presented as a “one-off” emergency bond, like a war bond, and then it would be expected to be re-issued forever. In short, a foot in the door, presented as a temporary measure, followed by its institutionalization as a permanent one. What will be the alternative to such bonds? The EU will just throw money at the situation... and hope the issue goes away, or leads to an eventual “perpetual bond”, depending on the political view one endorses.

Beyond the bond issue, the jist of the debate is now centering around a 1 trillion+ Euro relief fund and how to get it passed. Such a fund would, obviously, circumvent the bond issuance idea, which would, in proper EU fashion, take a decade or more of negotiation to even get off the ground. So, the EU Commission will seek to use a re-write of the core EU budget, the Multi-annual Financial Framework, to include more debt issuance, but within the budgetary structure – not through a “joint and several” liability that a true Eurobond would entail. If kept within the budgetary framework, all the EU would have to do is agree a multi-year budget. That's “all.” After the hole left by Brexit, that is unlikely to happen anytime soon. February's attempts at budgetary agreement, pre-Corona, went so badly, the discussions completely collapsed.

The other approach is an emergency-style fund (not bond), which ministers hope will pass, but the wrangling over the size and the payment for it keeps even it's inception mired is acrimony.

The issue never goes away. Europe is starting to get a real taste of what federalization means; not harmony, but an endless money grab as budgets blow-out beyond agreed limits time after time, and wrangling becomes endless. The Maastricht Agreement, one of the most hardly fought EU-wide pieces of legislation, has been violated so many times it is now a worthless piece of paper. In the past month, borrowing rules have been completely scrapped and the ECB is now planning to release some 750 billion Euros in emergency funding. Where does that money come from? Well, member state debt issuance, which will mean more bonds that nobody buys, in a zero interest rate environment, and that the ECB ends up buying itself. The question remains, 'Why does someone issue debt just to buy it itself?' It seems illogical.

The EU political machine keeps saying it “needs more time” to find an agreement. But there is no more time. That is the problem. The EU, as a functioning political entity, is running out of time.

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