Eurobonds or stability bonds were proposed government bonds to be issued in euros jointly by the European Union's 19 eurozone states. The idea was first raised by the Barroso European Commission in 2011 during the 2009–2012 European sovereign debt crisis. Eurobonds would be debt investments whereby an investor loans a certain amount of money, for a certain amount of time, with a certain interest rate, to the eurozone bloc altogether, which then forwards the money to individual governments. The proposal was floated again in 2020 as a potential response to the impacts of the COVID-19 pandemic in Europe, leading such debt issue to be dubbed "corona bonds".

Eurobonds have been suggested as a way to tackle the 2009–2012 European debt crisis as the indebted states could borrow new funds at better conditions as they are supported by the rating of the non-crisis states. Because Eurobonds would allow already highly indebted states access to cheaper credit thanks to the strength of other eurozone economies, they are controversial, and may suffer from the free rider problem.^[1] The proposal was generally favored by indebted governments such as Portugal, Greece, and Ireland, but encountered strong opposition, notably from Germany, the eurozone's strongest economy. The plan ultimately never moved forward in face of German and Dutch opposition; the crisis was ultimately resolved by the ECB's declaration in 2012 that it would do "whatever it takes" to stabilise the currency, rendering the Eurobond proposal moot.

In May 2010 the two economists Jakob von Weizsäcker and Jacques Delpla published an article^[2] proposing a mix of traditional national bonds (red bonds) and jointly issued eurobonds (blue bonds) to prevent debt crises in weaker countries, while at the same time enforcing fiscal sustainability. According to the proposal EU member states should pool up to 60 percent of gross domestic product (GDP) of their national debt under joint and several liability as senior sovereign debt (blue tranche), thereby reducing the borrowing cost for that part of the debt. Any national debt beyond a country's blue bond allocation (red tranche) should be issued as national and junior debt with sound procedures for an orderly default, thus increasing the marginal cost of public borrowing and helping to enhance fiscal discipline. Participating countries must also establish an Independent Stability Council voted on by member states parliaments to propose annually an allocation for the blue bond and to safeguard fiscal responsibility.^[3]

The authors argue that while their concept is not a quick fix, their Blue Bond proposal charts an incentive-driven and durable way out of the debt dilemma while "helping prepare the ground for the rise of the euro as an important reserve currency, which could reduce borrowing costs for everybody involved".^[3] Smaller countries with relatively illiquid sovereign bonds (such as Austria and Luxembourg) could benefit most from the extra liquidity of the blue bond, although Germany's borrowing costs under the blue bond scheme would be expected to fall below current levels. Countries with high debt-to-GDP ratios (such as Italy, Greece, and Portugal) would have a strong incentive for fiscal adjustment.^[3]

On 21 November 2011 the European Commission suggested European bonds issued jointly by the 17 eurozone states as an effective way to tackle the financial crisis. On 23 November 2011 the Commission presented a Green Paper assessing the feasibility of common issuance of sovereign bonds among the EU member states of the eurozone. Sovereign issuance in the eurozone is currently conducted individually by each EU member states. The introduction of commonly issued eurobonds would mean a pooling of sovereign issuance among the member states and the sharing of associated revenue flows and debt-servicing costs.^[4]

On 29 November 2012, European Commission president Jose Manuel Barroso suggested to introduce Eurobonds step by step, first applying to short-term bonds, then two-year bonds, and later Eurobonds, based on a deeply integrated economic and fiscal governance framework.^[5][6]

Italy and Greece have frequently spoken out in favour of eurobonds, the then Italian Minister of economy Giulio Tremonti calling it the "master solution" to the eurozone debt crisis.^[22] A growing field of investors and economists share this belief, saying eurobonds would be the best way of solving the debt crisis.^[7]

However, Germany remains opposed to debt that would be jointly issued and underwritten by all 17 members of the currency bloc, saying it could substantially raise the country's liabilities in the debt crisis. Barroso maintained that Germany did not oppose joint issuance in principle, but questioned the timing of it.^[23] Austria, Bulgaria, Finland and the Netherlands have also raised objections over eurobond issuance. Bulgarian finance minister Simeon Djankov criticised eurobonds ^{[citation needed]} in Austria's Der Standard: "Cheap credit got us into the current eurozone crisis, it's naive to think it is going to get us out of it."

The planned introduction of Eurobonds has been criticised by economists for reasons such as the free rider problem and moral hazard.^[29] Beside economic grounds, mainly legal and political reasons are mentioned which could prohibit the introduction of Eurobonds: Article 125 of the Lisbon Treaty states explicitly that the European Union and its member states are not liable for the commitments of other members.^[30] Since Eurobonds would possibly contravene Article 125, it may have to be changed prior introduction.^[31]

Spanish and Italian leaders have called for jointly issued "corona bonds" in order to help their countries, hard-hit by the outbreak of coronavirus disease 2019, to recover from the epidemic.^[33] Corona bonds were discussed on 26 March 2020 in a European Council meeting, but Germany and the Netherlands ruled out issuing such bonds.^[34][35] European Central Bank head Christine Lagarde, who plans (separately) to buy more than 1 trillion euros in bonds in response to coronavirus, urged the EU to consider issuing corona bonds.^[35] After the meeting, Spanish leaders continued to argue for jointly issued debt.^[36]

Despite the fact that the European Commission and European Central Bank released billions in special funds, relaxed the limits for budget deficits and government debt of EU countries, some members (such as France, Italy, Spain, Belgium, Ireland, Portugal, Greece, Slovenia and Luxembourg) demanded more to be done in relation to the COVID-19 pandemic. However, Germany which was the strongest opponent of eurobonds, was supported by Austria, the Netherlands, Finland and Estonia. In the meantime, Italian Prime Minister Giuseppe Conte questioned: "What do we want to do in Europe? Does each member state want to go its own way?",^[37] he also added: "If we are a union, now is the time to prove it", in Germany's weekly Die Zeit.^[38] Conte also described the European Stability Mechanism (ESM) as "completely inadequate" to face the crisis.^[39]

Later on, European Commission chief Ursula von der Leyen mentioned that "Today Europe is mobilising alongside Italy. Unfortunately, this has not always been the case", she later added that EU "will allocate up to 100 billion euros ($110 billion) to the hardest hit countries, starting from Italy, to compensate for the reduction in the wages of those working on shorter hours".^[38] The main opposition to the plan by the Commission came from the so-called Frugal Four.

Eventually, in July 2020 the European Council agreed to issue European sovereign bonds of 750 billion €, branded Next Generation EU, to support member states hit by the COVID-19 pandemic.^[40]

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