Adam Tooze argues that the frail eurozone recovery hinges entirely on its guarantee by the European Central Bank.

Adam Tooze | November 30, 2020 | Social Europe

In the final weeks of 2020 an optimist might see light at the end of the tunnel. Europe was hit hard by the second wave of Covid-19. But it is being brought under control. Several vaccines are in the pipeline and European manufacturers lead the race. Inoculation of the most vulnerable may begin even before the year is out. Then restrictions can be lifted. Social life will get back to normal.

This optimistic narrative is indeed itself a force to be reckoned with. As a self-fulfilling prophecy, it helps to bolster confidence and with it economic recovery.

By analogy with the timeline of the eurozone crisis, one might think that we are back, eight years ago, in late 2012, in the months after the president of the European Central Bank, Mario Draghi, had cast a magic spell with his ‘whatever it takes’ commitment. For tens of millions of Europeans, the economic pain continued. But the panic was stopped. The foundation for a recovery had been laid.

In 2020, the European Union’s recovery package bolsters this upbeat narrative. It is a source of satisfaction in the European Commission that its new debt—a 15-year, €8.5 billion ‘social bond’ to support the SURE employment instrument—is meeting such an eager reception in the market. The latest tranche was 13 times oversubscribed and yielded a negative rate of minus 0.102 per cent. Which means that for every 102 euros the EU receives from its creditors it will have to pay back only 100. Even German bonds hardly do better.

Originally published by Social Europe. Read the full article here.