Pilkington, P., (2013), “The Continued Relevance of Tax-backed Bonds in a Post-OMT Eurozone”, Levy Economics Institute, Policy Note 2013/10, December.
In a policy note published last year by the Levy Institute, the present author and Warren Mosler argued that the eurozone sovereign debt crisis could be solved by national governments without the assistance of the European Central Bank (ECB) and without leaving the currency union. We argued that this could be done through the issuance of a proposed financial innovation called “tax-backed bonds.” We laid out the basic premise as follows:
Tax-backed bonds would be similar to standard government bonds except that they would contain a clause stating that if the country issuing the bonds does not make its payments—and only if the country does not make its payments—the tax-backed bonds would be acceptable to make tax payments within the country in question, and would continue to earn interest. (Pilkington and Mosler 2012, 1)
Since that time, the tax-backed bond has been considered and rejected by the Irish finance minister (Houses of the Oireachtas 2012), while the ECB has engaged in providing extensive guarantees that indebted countries in the eurozone will not default.
In what follows, we will examine the continued relevance of the proposal in light of the changes that have taken place with respect to ECB policy since the original proposal was made. We will also examine the case made by Ireland’s finance minister that tax-backed bonds would violate current Irish law (and, by implication, the law in other eurozone countries). Finally, we will examine some innovations made to the initial proposal in response to constructive criticisms that we have received since its publication, and will briefly note another area in which the proposal might be utilized.
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Σχετικές Αναρτήσεις
- Uhlig, Η., (2013), “Sovereign default risk and banks in Europe’s monetary union”, VoxEU, 5 Σεπτεμβρίου.
- De Grauwe, P. and Ji, Y., (2013), “Fiscal implications of the ECB’s bond-buying programme”, VoxEU, 14 Ιουνίου.