Brunnermeier, Markus K, Langfield, Sam,Pagano, Marco, Reis, Ricardo, Nieuwerburgh, Stijn Van, Vayanos, Dimitri, (2016), “ESBies: Safety in the tranches”, VoxEU, 20 September
The Eurozone lacks a safe asset that is provided by the region as a whole. This column highlights why and how European Safe Bonds, a union-wide safe asset without joint liability, would resolve this problem, and outlines steps to put them into practice. For given sovereign default probabilities, these bonds would be as safe as German bunds and would approximately double the supply of euro safe assets. Moreover, owing to general equilibrium effects, they would weaken the diabolic loop between sovereign risk and bank risk.
Relevant Posts
- Ari,Anil, (2016), “Sovereign risk and bank risk-taking”, ECB Working Paper Series No 1894, Αpril 2016
- Pisani-Ferry, Jean, (2016), “The Eurozone’s Zeno paradox – and how to solve it”, VoxEU, 10 Αpril