布鲁盖尔-Paths-to-eurobonds_40页_558kb

Summary of "PATHS TO EUROBONDS"

Core Content

This paper explores various proposals for common euro area sovereign securities, commonly referred to as Eurobonds. The authors argue that such instruments could serve both short-term and medium-term functions: stabilizing financial markets and banks in the short run, and improving the economic governance framework of the euro area through fiscal discipline and risk-sharing in the long run. The paper emphasizes that the success of these proposals hinges on institutional and political decisions, and that they may not be mutually exclusive but rather complementary, forming part of a broader path toward a fully-fledged Eurobond.

Main Viewpoints

• Fiscal Risk-Sharing and Discipline: Common debt issuance can reduce borrowing costs for stressed sovereigns and provide a form of insurance against interest and liquidity shocks. However, it raises concerns about moral hazard and the need for strong enforcement mechanisms to maintain fiscal discipline.
• Financial Stability: By weakening the link between banks and their respective national sovereigns, common debt could reduce the risk of a "bank-sovereign loop." Additionally, it can provide a safe asset that reduces the likelihood of flight to quality, thereby stabilizing financial markets and reducing the need for extraordinary ECB liquidity measures.
• Monetary Policy Transmission and Financial Markets: A unified bond market could restore the normal functioning of monetary policy transmission and reduce financial market fragmentation. This would enhance the euro's role as a reserve currency and potentially improve the international monetary system.

Key Information

Objectives of Common Debt Issuance

Proposals Reviewed

The paper reviews five key proposals for common debt issuance:

1. Blue-Red Bonds (Delpla and Von Weizsäcker, 2010)

   • Structure: 60% of GDP is issued as Blue bonds (joint and several guarantees), with the remainder as Red bonds (national debt, reflecting individual creditworthiness).
   • Impact: Reduces borrowing costs for some countries, insulates banks from sovereign risk, and allows for a gradual transition.
   • Guarantees: Joint and Several (JS).
   • Tranching and Pooling: Tranching and pooling.

2. ESBies (Euro-nomics Group, 2011)

   • Structure: A senior tranche (ESBies) and a junior tranche (EJBs) of a pooled sovereign debt portfolio.
   • Impact: Reduces the risk of flight to safety and shifts risk from individual countries to the eurozone.
   • Guarantees: No intergovernmental guarantees, though some credit enhancements may be used.
   • Tranching and Pooling: Pooling with tranching.

3. Redemption Pact (German Council of Economic Experts, 2011)

   • Structure: Debt above 60% of GDP is transferred to a European Debt Redemption Fund (ERF), with all members jointly and severally liable.
   • Impact: Reduces sovereign-bank linkages and allows for a more stable financial system.
   • Guarantees: Joint and Several (JS).
   • Tranching and Pooling: Tranching and some pooling.

4. Eurobills (Hellwig and Philippon, 2011)

   • Structure: Short-term common debt, limited to about 10% of GDP.
   • Impact: Provides a safe asset and reduces borrowing costs for some member states.
   • Guarantees: Joint and Several (JS).
   • Tranching and Pooling: No tranching, but pooling.

5. EC Green Paper (November 2011)

   • Structure: Proposes three options, ranging from full substitution of national debt to a mix of common and national debt.
   • Impact: Aims to improve financial stability and fiscal governance.
   • Guarantees: Joint and Several (JS) and Several (S).
   • Tranching and Pooling: Depends on the option chosen.

Incentives and Legal Considerations

• Guarantees: The use of joint and several guarantees is central to the proposals. These create different levels of risk and cost implications.
• Tranching and Pooling: These mechanisms enhance the safety of senior instruments and make junior ones more sensitive to fiscal conditions.
• Fiscal Coordination: Most proposals require some level of fiscal coordination, with the Blue-Red and Redemption Pact proposals involving more extensive coordination.
• Collective Action Clauses (CACs): The presence of CACs is important for restructuring, though their inclusion in new instruments is not certain.

Conclusion

The paper suggests that common debt issuance can be a stepping stone toward a more integrated fiscal union. However, the design and implementation of such instruments must be carefully considered to avoid moral hazard and ensure financial stability. The specific path chosen should allow for learning and the development of institutional and political safeguards. The authors highlight the need for a combination of institutional reforms and market-based mechanisms to achieve a balanced and sustainable fiscal and financial governance framework in the euro area.