Stability bonds (Eurobonds)

The euro area sovereign debt crisis has revived the debate on the common issuance of sovereign bonds in the eurozone. The introduction of such stability bonds (or Eurobonds) is seen by some policy makers and experts as a solution to the crisis. It would give a better access to financial markets for the highly indebted countries and thank to a common liability, it would strengthen the eurozone’s credibility. However, the issue is highly controversial with Germany firmly opposed to the idea under the proposed conditions. To try to shed some light on the issue the European Commission published a Green Paper on the feasibility of introducing stability bonds.
According to the Green Paper, “Eurobonds” would not necessary mean merely pooling euro countries’ debt together. Although the full substitution by Stability Bond issuance of national issuance, with joint and several guarantees would be the boldest option, two other partial substitution approaches are being considered with or without joint guarantees.

For the recent proposals for debt mutualization tools please see  the Library Keysource on Eurozone Budget (EP Internal link).

Overviews

Calls for ‘Eurobond’ resurface as crisis threatens EU finances, Euractiv, 26 September 2008
This article was published when the 2007 financial crisis turned into an economic crisis. It is a good reminder of the economic context in which the idea of Eurobonds came back on the agenda.

Eurobonds: Concepts and Implication, European Parliament Directorate General for Internal Policies, Economic and Scientific Department, March 2011
This compilation of notes seeks to answer four questions: what are the different concepts between the various Eurobonds proposals; how could Eurobonds help easing the tensions on the sovereign debt markets; are there alternatives to Eurobonds; and what would the issuance of joint bonds imply for economic governance in the euro area and the legislative proposals under discussion?

Library Briefings on Stability bonds and Eurobonds (Internal link).

EU Institutions

European Commission

Commission’s Green Paper (with public consultation) on the feasibility of introducing stability bonds

European Parliament

Debate on the feasibility of introducing stability bonds – 14 February 2012, Strasbourg
The European Parliament held a debate on the feasibility of introducing stability bonds during the February 2012 plenary session in Strasbourg. The European Commission was represented by Justice Commissioner Viviane Reding, participating on behalf of Commissioner for Economic and Monetary affairs Olli Rehn.

European Parliament resolution – 15 February 2012
Following the debate in Strasbourg, MEPs adopted a resolution on the feasibility of introducing stability bonds. In this resolution, MEPs welcome the Commission’s Green Paper and reiterates their position in favour of the common issuance of bonds within the euro area, highlighting that these bonds would be different than the bonds issued by federal states.

European Parliament’s own initiative procedure on the feasibility of introducing stability bonds, Oeil procedure file, 2012/2028(INI)

Parliamentary questions on Eurobonds or Stability bonds

EESC

Opinion of the  European Economic and Social Committee  on the  Green Paper on the feasibility of introducing stability bonds COM(2011) 818 final, ECO/326 Stability Bonds, 11 July 2012

Analysis

The Blue Bond Proposal / Jacques Delpha and Jakob von Weizsäcker, Bruegel Policy Brief, issue 2010/03, May 2010, 8 p.
This Bruegel policy brief is one of the first policy recommendations on the common issuance of debt in the euro area that was published in the wake of the eurozone sovereign debt crisis. Long story short, it suggests that euro countries pool their debt up to 60% of their respective GDP (blue bond). Any debt above this level should be issued at national level (red debt).

EU public debt management and eurobonds : note / Favero, Carlo A., Missale, Alessandro European Parliament Policy Department A, IP/A/ECON/NT/2010-10,
September 2010, 31 p.
This paper investigates the determinants of interest-rate differentials between euro-area Member States and between US and Germany in order to provide the relevant stylized facts needed to evaluate the rationale for a common Eurobond. Then, it discusses the benefits and the costs of three possible types of Eurobonds that encompass the various proposals. Finally, it considers the legal obstacles and the political opposition to a common issuance program.

The creation of a common European bond market, European League for Economic Cooperation, Cahier Comte Boël no. 14, March 2010, 37 p. 
This paper gathers four articles discussing the opportunity and the relevance of introducing Eurobonds. It provides different points of view and different options for the eurozone.

The implications for the EU and national budgets of the use of EU instruments for macro-financial stability / Alessandra Casale et al., European Parliament, Directorate General for Internal Policies, Policy Department D: Budgetary Affairs, Study, May 2012, 82 p.
This study gives an overview of the existing and recently proposed instruments for safeguarding macro-financial stability of the EU. For the new proposals please see chapter 4.1. “Existing proposals for new EU MFS instruments and their implications for the EU budget”on p. 67-75.

The debate

Paths to eurobonds / Stijn Claessens, Ashoka Mody, Shahin; Vallée, Bruegel Working paper 2012/10, July 2012, 40 p.
This paper discusses proposals for common euro area sovereign securities. Such instruments can potentially serve two functions: in the short-term, stabilize financialmarkets and banks and, in the medium-term, help improve the euro area economic governance framework through enhanced fiscal discipline and risk-sharing.

Mutualising Eurozone sovereign bonds? First of all, tame the tails / David Veredas, VoxEU blogpost, 24 June 2012
Many view Eurobonds as the silver bullet to end the Eurozone’s crisis. But this column argues that Eurozone debt tail risks are worryingly high, with those of bailout countries rising despite the rescue packages. It urges Europe’s leaders to be cautious when pooling debt to create a Eurobond – adding that it is only advisable once tail risks are tamed.

Eurobonds / Carl-Erik Torgersen, Harvards Law School, April 2012, 25 p. 
Short paper prepared by student dealing with the issue of the Eurobonds, the current sovereign debt crisis and the legal issues related to them. It furthermore gives a summary of the different Eurobond proposals (Gros and Micossi ; De Grauwe and Mösen ; Hild, Herz and Bauer ; Muellbauer ; Delpla and von Weizsäcker). The author presents also an alternative Eurobond proposal.

EU Green Paper, Eurobonds, CEP Policy Brief No. 2012-04 of 23 January 2012
This Policy Brief outlines the position of the Centrum für Europäische Politik. It first presents the content of the Commission’s Green Paper and then it argues against the introduction of Eurobonds, mainly because of the moral hazard that they would trigger.

Is the ‘Euro Bond’ the Answer to the Euro Sovereign Debt Crisis? What Outcome Can Investors Expect Out of Europe? / Kenneth N. Matziorinis, The Journal of Wealth Management, Vol. 14, No. 4, December 2012, p. 11-21
This paper analyzes the causes of the sovereign debt crisis in the eurozone and examines the policy alternatives confronting euro area governments. It suggests that pooling fiscal risks, creating an EU Treasury and issuing jointly-backed euro bonds is an optimal solution and the inevitable conclusion of the economic integration project in Europe.

The Trouble with Eurobonds/ Hans-Wenner Sinn, Project Syndicate, 25 August 2011
Hans-Wenner Sinn argues  gainst the introduction of Eurobonds because he believes that no country, not even Germany or France can actually guarantee them.

Eurobonds: Wrong solution for legal, political, and economic reasons / Daniel Gros, VoxEU, 24 August 2011
“This column argues that the Eurobonds proposal fails on legal, political, and economic grounds. It says that, whatever the variant, Eurobonds only make sense in a political union—and given the vast differences in national political systems and their quality of governance, any political union created on paper will not work in practice.”