The election of François Hollande as president of France has given new impetus to measures aimed at promoting growth in the eurozone and at protecting against a further worsening of the sovereign-debt crisis. However, many ideas that are being discussed by policy-makers are still a long way from becoming a reality.

Issuing project bonds

The only proposal in this list that has been endorsed by member states and the European Parliament, project bonds will fund infrastructure projects across the EU. Officials from Denmark, which holds the presidency of the Council of Ministers, won support for the idea from other member states on Monday (21 May) and agreement was reached with the European Parliament the following day in Strasbourg. Currently, approval has been given only to a pilot project of these commonly funded bonds, using €230 million of the EU’s existing infrastructure budget for 2013. The bonds will be invested in energy, transport and communications projects. The European Commission believes that they could attract enough private investment to leverage the value of the bonds by 15-20 times. Angela Merkel, the chancellor of Germany, is said to be sceptical about making the scheme permanent.

Verdict: Going ahead but, even if the pilot project is extended, projects bonds would represent no more than a drop in the ocean.

Creating Eurobonds

Not to be confused with the project-bond programme that has been given the go-ahead, Eurobonds remain off the agenda, at least officially. Eurobonds would see eurozone member states pooling their debt – something that many economic analysts have been saying since the start of the eurozone crisis is the only way to solve the currency’s underlying problems. The European Commission and France believe that Eurobonds should be introduced and even David Cameron, the prime minister of the non-eurozone UK, has said that they are essential. Germany remains fundamentally opposed, as are the Netherlands and Finland.

Verdict: Remains the crucial battle between France and Germany over the future of the eurozone and is likely to shape the debate in the months to come. Difficult to see how Merkel could soften her stance.

Giving more money to the EIB

The European Investment Bank provides long-term financing to projects inside and outside the EU. Some countries and the Commission believe that giving it additional funds – a figure of €10 billion has been mentioned – would enable it to boost programmes to stimulate growth in the EU. The advantages of the plan are that it is seen as cheap – all but 5% of the EIB’s capital is ‘callable’; that is, available for use – and the money does not count as part of member states’ deficits. However, some countries, including Germany, are worried about what it could do to public debt and that the EIB could end up investing in riskier projects that would endanger its triple-A rating.

Verdict: It would not be a surprise if the plan formed part of the growth pact demanded by Hollande.

Re-directing EU structural funds

The Commission wants to use unspent funds designed to help the EU’s poorest regions and divert them towards growth-enhancing projects. However, although the money – which comes from the EU central budget – is ‘unspent’, most of it has been committed to projects by national governments, which believe they are being prudent by saving it until they want to use it.

Verdict: Has its merits but will not be resolved in the short term because countries would resist losing money that they already have their hands on.

Using the bail-out fund to re-capitalise banks directly

Spain and Italy are among the countries pushing for the terms of the European Stability Mechanism (ESM), the permanent eurozone rescue fund scheduled to come into operation on 1 July, to have the authority to re-capitalise banks. At the moment, EU rescue funds can be given only to national governments – who then pass the money onto the banks. Under the existing arrangement, countries are forced to abide by conditions – something that would be a lot more difficult to impose if the cash went straight to banks.

Verdict: Will become more likely if Spain’s perilous banking sector needs bailing out – but national leaders will have to find ways of imposing conditions.

Increasing the bail-out fund

The issue of expanding the ‘firewall’ has not gone away, despite eurozone leaders’ agreement at the end of March to boost the lending capacity of the eurozone’s rescue funds to €800 billion, of which €500bn is uncommitted. However, that was before Spanish and Italian bond yields started climbing again last week and before a clearer picture of the fragility of the Spanish banking sector began to emerge. Any policy change would include a greater role for the European Central Bank, which could end up lending to the ESM – but there is significant opposition to that in northern eurozone capitals and on the ECB’s governing council.

Verdict: Will not happen in the short term but if the borrowing costs of Spain and Italy become unsustainable, it could become inevitable.

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