EURO STABILITY BONDS

EUROBONDS

1.-Launchig of eurobonds.
2.-Rational.
3.-Preconditions.
4.-Different options.
5.-The Debt Redemption Fund.
6.-Institutional set-up.
1-LAUNCHING OF EUROBONDS

 Day to day financing of eurozone

Treasuries
 Dealing with excessive spreads
 Pooling of risk by mutualizing the
issue of bonds
 Need for discipline/stronger fiscal
rules
 IMF, Eur. Com.and Parliament in favor
2.-RATIONALE

 Managing the current crisis and preventing

future sovereign crisis
 Reinforcing financial stability in the
eurozone and the banking system
 Facilitating the transmission of the single
MP (single public debt market)
 Improving market efficiency
 Enhancing the intern´l role of the euro
3.-PRECONDITIONS

 Limiting moral hazard :Strengthening

fical rules and budgetary discipline
 Institutional centralization and political
commitment to transfer budgetary
sovereingty (review German thinking)
 Must include all eurozone M. S.
 Ensuring high credit quality
4.-DIFFERENT OPTIONS (I)

 Option 1.- Joint and several guarantee to

substitute all public debt of eurozone M.S.
 Benefits very large and deep debt market;
maximum attractiviness of EU financial
market
 Strong benefits from higher to lower
rated countries but moral hazard possible
 Maximum stability for the euroze and new
federal institution in charge.
4.-DIFFERENT OPTIONS (II)

 Option 2.-Joint and several guarantee

to partially substitute national issuance
 Medium positive effects from medium
liquidity benefits
 Risk persits of instability with no
pooled issuance of debt, Brueggel ´s
 Lower moral hazard problems than
option 1: less institutionally demanding
5.-THE DEBT REDEMPTION
FUND ALTERNATIVE.

 Pool government debt exceeding

60% of the GDP, joint and several
substitution of this amount
 Compulsory program to phase out
stock of debt above 60% through a 25
years debt reduction program; Italy ?
 Temporary, crisis tool, doesn not
imply, in principle, fiscal union and a
single public eurobond market
6.-INSTITUTIONAL SET UP

 For options 1 and 2 you need a

centralised Debt Management Office
 Leave ESM for crisis management
or specific financial needs, option 2
could be managed by the ESM.
 Many datails regarding the DMO/ESM
relationships with Treasuries remain to
be specified