The latest proposal: an E-bonds model
The paper explores in particular the E-bonds model, whereby a supranational institution would raise funds in the markets and provide bilateral senior loans to Member States corresponding to a fixed proportion of GDP, complementing the issuance of national government bonds, without risks of mutualisation. The main findings are that E-bonds could reach a volume of 15 to 30% of euro area GDP with a high degree of safety while becoming the reference safe asset for the banking sector, capital markets and monetary policy operations in the euro area. As regards the impact on remaining national bonds, such volumes would be consistent with Germany maintaining its top credit rating. The average funding costs of Member States would remain broadly stable, while marginal funding costs would tend to experience limited increases, which should enhance market discipline.
A European safe asset to complement national government bonds
Authors: Gabriele Giudice, Mirzha de Manuel, Zenon Kontolemis, Daniel P. Monteiro
From: European Commission
Evaluation of the four current proposals
There are currently four approaches to creating a euro safe asset:
- A diversified portfolio of senior tranches of sovereign debt (“national tranching”);
- A senior security backed by a diversified pool of national sovereign debt (“ESBies”);
- Debt issued by a senior financial intermediary, backed by a diversified pool of national debt (“E-bonds”); and
- Debt issued by a euro area budget or a leveraged wealth fund, based on member state contributions or dedicated direct revenue sources.
Leandro and al. evaluate these approaches and find:
The Search for a Euro Area Safe Asset
Authors: Álvaro Leandro, Jeromin Zettelmeyer
From: Peterson Institute for International Economics
