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Eurobonds: how and when?


Euro Area Macro Viewpoint by BofA Merril Lynch - 11 June 2012.




Eurobonds: how and when?
Eurobond proposals: what are they?

In the wake of the worsening euro area sovereign crisis and of changes in political strategies, Eurobond ideas have come to the forefront of the debate. We analyse the extent to which Eurobonds may help resolve the euro area crisis, which we split into four areas of concern: 1/ a negative feedback loop between banks and sovereigns; 2/ excessive public indebtedness; 3/ a crisis of confidence and political resolve; and 4/ a growth predicament. Four main proposals are being debated: Eurobills, European Safe Bonds (ESBies), the German European Redemption Fund (ERF), and the Blue/Red Bonds. We find that Eurobonds mostly address the negative feedback loop and confidence issue. They do not address those debt issues that may require a restructuring, nor do they act as a catalyst for short-term growth. However, by increasing the cost of breaking-up, they would deliver a powerful confidence boost to the market.

Eurobond proposals involve few transfers

A common feature of the four proposals is that they do not involve direct fiscal transfers. However, any proposal involving joint and several guarantees may require a treaty change to account for Article 125 of the Lisbon Treaty. For Eurobills, the joint and several guarantees are limited relative to GDP, which should satisfy the parameters set by the German...


Vendredi 15 Juin 2012
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