Joint bonds issued by the euro zone, also known as Eurobonds, are one of the possible solutions to Europe’s debt crisis, Joaquin Almunia, vice president of the European Commission told CNBC, “but many conditions would have to be met” before they are introduced.
Almunia said that were the issuing of Eurobonds to go ahead, stringent conditions would have to be met to make sure it was fair that countries with high debt and low competitiveness (such as Greece, Portugal and Spain) borrow money at the same cost as countries with a competitive market, low debt, and high economic growth (such as Germany).
“We support the idea of the mutualization of euro zone debt. The commission has been analyzing this idea of stability bonds, or Eurobonds, as a way to mutualize the public debt of the member states of the euro area,” he said.
“We consider that this is not an instrument that can be used without any conditions. I think that as we are going towards a deeper and broader economic and monetary union, closer fiscal union, the mutualization of public debt is one of the necessary elements,” Almunia said. “The question is when the conditions for the success of this instrument will be on the table.”
When asked whether there was a risk that countries such as Greece and Spain could lose the motivation to pay back their debts and restructure their economies if they could borrow money cheaply and automatically, Almunia, who is also the competition commissioner in Europe, said there was still work to be done.
“I think there are countries that need to correct their imbalances, and that need to adjust their fiscal deficit and improve their competitiveness,” he said.
He praised the efforts of certain governments which were pushing through reforms despite the backlash from voters over austerity policies, and said that the "common interest" binding the 17 euro zone members would mean that Europe would continue to work together.
“These governments are suffering when the voters vote, but I think the efforts being developed are quite impressive,” Almunia said. “I am convinced because of the common interest of all the euro area members that this effort will continue and we will have success.”
He said he hoped that the Parliament that emerges from Greek elections on June 17 would “stick to previous commitments” to austerity measures, but that he did not want Greece to leave the euro.
“I very much hope that they stay, I can’t see any other alternative that would be better than Greece making an effort, making reforms, and launching new policy decisions but staying in the euro area, because the euro area is good for Greece and Greece is good for the euro area,” Almunia said.
—Reported by CNBC’s Pamela Bem, Written by Holly Ellyatt