Why Eurobonds are critical to a stronger Europe?

Christophe Chamley of Boston University in this post says why Europe needs Eurobonds.

His reason is all political powers have been created with a proper financial instrument of sovereign debt:

There is no example in history of the rise of a political power without the simultaneous creation of its proper financial instrument of sovereign debt. The creation of a new financial instrument rests only on one basis, its credibility. For each of the past creations, that credibility was based on a central principle: the alignment between bondholders and both the tax revenues used to service the debt and the funding of the new debt. In other words, specified taxes were levied on which the service of the debt had first claim.

This principle was at work in the Italian cities of the Middle Age, in the 16th century Castile of Philip II, in the Dutch republic of the late 16th and 17th centuries, in England after the Glorious Revolution, and in the foundation of the US. In 18th-century France, the limited use of that enforcement mechanism may have contributed to the fiscal problem of the Ancien Régime that led to the French Revolution. All these countries had to start anew to establish mechanisms for a new financial instrument of the public debt. The same challenge faces European countries today.

The alignment between bondholders and the controllers of the tax revenues explains why the public debt emerged in the Italian cities in the 13th century (Florence, Genoa, Milan, and Venice), where the oligarchy held city-bonds and controlled the enforcement of the taxes that serviced the bonds. In 1262, the senate in Venice created the ligatio pecuniae paying 5% that was funded by revenues from specified sales taxes. The payment of interest had first claim on the revenues of these taxes, prior to any ’extraordinary’ expenses. Some of the surplus of revenues went to a ‘Sinking Fund’ for the amortisation of the debt (Tracy 1985, p11). Indeed, Genoa went through a transition in the 14th century that could be a model for Eurobonds1.

He points to example of UK:

In 18th century England, the national parliament that gained power after the Glorious Revolution controlled both expenditures and the collection of revenues. However, the parliamentary balance between bondholders in cities and taxpayers in the countryside could change (Stasavage 2003) and the service of the bonds out of general revenues lacked transparency. Interest rates began to fall only when the debt was funded through earmarked taxes: each new bond issue that would be approved in Parliament required the introduction of an earmarked tax (eg an excise on specific items) that would finance its long-term service. During a war, a new bond issue was made in each year. Each new issue had the same financial terms (maturity, redeemability) as the previous one in order to create a financial market as wide as possible for the same bond. That consolidation facilitated the reduction of the interest rate in 1749 without disruption in the financial market. It was formalised a few years later by the famous consols that have been the backbone of the English public debt ever since (Chamley 2011).

Even US:

In 1790, under the impulsion of Hamilton, the new US federal government bought at par, without haircut, all the debts that the states had accumulated up to various levels during the War of Independence, and introduced new taxes (tariff and excise) to service the new US bonds (McKinnon 2011). In the US today, the retirement benefits of Social Security are paid out of an earmarked tax. The Bush administration tried to abolish that earmarking and to include the tax into the general revenues, but the outcry forced its retreat.
Similarly, Europe needs Eurobonds. The problem really is the complication:
Eurobonds could be created with an ad hoc institution, the Euro-Fund. Because of the multiple governments, that fund would have some features of financial intermediation, but would not be a bank. It would be an independent institution, with minimal staffing and policy role. In the current situation of the states’ debts, its first initiative could be the purchase of 50% of the public debt of participating countries. It would finance these purchases by issuing Eurobonds. The participating countries would be committed, by treaty, to devote a specific tax for payments to the Euro-Fund. That tax would have first claim to the revenues of a country, prior to any expense of any sort, as in 1262 Venice. Each country would keep a separate balance at the Euro-Fund and be charged the same rate on that balance. A surplus or deficit of the tax revenues would entail a variation of the debt of the country at the Euro-Fund. The liability of a country at the Euro-Fund would have a maximum of 60% of its GDP. A country’s public debt above that level would be financed like any sovereign bond. A country could keep a margin of safety below the ceiling for any emergency refinancing of its remaining sovereign debt and to prevent speculative attacks on its interest rate.
Again it becomes like a SPV sort of thing like EFSF with little clarity.
Well, actually the idea of having a sovereign bond is fine but you need a strong centre for this. In Europe, each country is its own centre and there is little power at European Parliament level. Unless the countries give up more rights to the parliament and have some kind of a strong finance  minstry etc., this arrangement of Eurobond unlikely to work. I mean the above article says the countries need to devote a specific tax to fund the bond. How do you ensure all pay  taxes for such a fund in countries like Greece where tax evasion is so common.
So, a nice historical perspective on why Eurobonds but unlikely to work without a proper institutional structure.

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