西班牙在永续债券上领先

When the European Council’s virtual summit convenes on April 23 to address how the European Union should cope with the economic fallout of the COVID-19 pandemic, it should consider the Spanish government’s submission carefully. Indeed, it should be the first item on the meeting’s agenda.

The European Council is holding a virtual summit on April 23 to consider how the European Union should cope with the economic fallout of the COVID-19 pandemic. Spain’s submission is by far the most thoroughly considered and innovative proposal that will be presented. It should be the first item on the meeting agenda.

The main innovation that Spain will introduce is the EU’s issuance of perpetual bonds. The idea is not new. Britain first issued consolidated bonds, or Consols, in 1752, and later used them to finance the Napoleonic and Crimean Wars, the Slavery Abolition Act, the Irish Distress Loan, and World War I. The United States Congress authorized issuing Consols in 1870 to consolidate the debts accumulated in the Civil War.

But perpetual bonds have never before been considered by the EU. Now Spain is proposing them as an extraordinary measure to deal with an extraordinary situation. They would be extremely effective.

We are currently under attack by a largely unknown novel coronavirus, and perpetual bonds would provide us with the financial resources we need to win that battle. We are also engaged in another battle that threatens to destroy our civilization: climate change. I propose that perpetual bonds be used to finance that battle as well.

As their name implies, the principal on perpetual bonds never has to be repaid, although in different circumstances it may be appropriate to redeem them. In 2015, for example, the United Kingdom redeemed the British Consols and war bonds in full. A €1 trillion ($1.1 trillion) issue carrying a coupon of 0.5% would cost €5 billion a year to service. This would give €5 billion a two-hundredfold leverage. Even the authors of Spain’s “non-paper” may not have realized the implications; they devote a large part of their proposal on how the perpetual bonds can be serviced.

But that is not a problem. EU governments could easily underwrite €5 billion to service a €1 trillion issue of perpetual bonds, either unanimously or by a coalition of the willing. There is no need to find new sources of revenue.

Selling €1 trillion worth of perpetual bonds with a yield of 0.5% is not a problem, either. The longest bond currently outstanding (Austrian 100-year bonds) yields just under 0.5%. Of course, it may take the markets some time to familiarize themselves with the idea of perpetual bonds. But the issue of perpetual bonds does not need to be sold in one go; it can be sold in tranches, and long-term investors such as life insurance companies will snatch them up. As the tranches are completed, they would sell at a premium over the Austrian bonds.

There is a debate about the size of the perpetual bond issue. EU Commission President Ursula von der Leyen is seeking €1 trillion, but the Spanish non-paper proposes up to €1.5 trillion. This offers an opportunity to include the second threat to our civilization, climate change. This threat was foremost in the public’s mind, and the primary concern of the European Commission, until the novel coronavirus overshadowed everything else. But we should not forget climate change.

The primary objective of issuing €1.5 trillion worth of perpetual bonds must be to combat the pandemic, but if it is brought under control, there may be some money left over to fight climate change; if not, a separate bond issue could be considered. It should be emphasized, however, that both the pandemic and climate change are exceptional occurrences that call for exceptional policies; perpetual bonds should not be used under normal circumstances.

I have two other observations. One relates to the following passage in the Spanish non-paper: “The Fund could be anchored within the umbrella of the Multiannual Financial Framework below the own resources ceiling but above the expenditure ceiling.”

It is not clear whether this means that the MFF should be subordinated to the objectives of the perpetual bond issue, or the perpetual bond issue should be subordinated to the MFF. Given the difficulties of agreeing on the MFF, if the latter interpretation is correct, the perpetual bonds may be issued too late or never.

The non-paper states that the “transfer of funds should be frontloaded,” beginning on January 1, 2021, “and be executed during the coming 2 to 3 years in order to jump-start the economies of affected countries.” This seems to indicate that the first interpretation is correct. Nevertheless, greater clarity would be highly desirable.

My other observation relates to Italy, where public opinion is moving toward leaving the euro and the EU. What remains of Europe without Italy? That question underscores the importance of using perpetual bonds – and should induce the European Council to move even faster than it is currently contemplating.