European Corona Solidarity Bonds

We propose an additional funding tool for the collective effort against the COVID-19 pandemic and its economic fallout by issuing European Corona Solidarity Bonds (ECSBs) which are backed by revenues on a new EU-wide universal tax on financial assets, collected at the source. To combat the pandemic, governments need to significantly increase spending. It is in the EU’s shared interest that all governments (are able to) do all that is needed, act promptly and decisively. The required increases in public spending risk compromising the financial stability of indebted countries. This paper attempts to sketch one possible solution how to: • Generate a sufficient amount of funding to fight the economic COVID-19 fallout (500 billion – 2 trillion), • Quickly (likely operational in less than one month), • Without increasing sovereign debt levels (as these may become unsustainable for some heavily affected countries), • Without resorting to debt mutualisation (as a political agreement seems unlikely), • Without using monetary financing, • In a way that ideally could be perceived as “fair” or, at least, socially acceptable. This note explains how the issuance of European Corona Solidarity Bonds (ECSBs), backed by revenues on a universal tax on financial assets, may achieve these goals. As EU-total financial wealth is in excess of 100 trillion euro, initial estimates of our proposal suggest that a 1 basis point annual tax would support an annual flow of 10 billion, which allows a 10-year issuance of 100 billion euro. Without leading to a significant distortion of markets, the scheme could realistically be scaled up to 1-2 trillion euro and be implemented as a complement to further fiscal, regulatory and monetary measures.