BRUSSELS (MNI) – A European Commission study examining options for
euro area governments to issue some debt collectively, to be formally
presented on Wednesday, focuses on three possibilities, including a
complete collectivization of governments’ bond issuance, according to
media reports.
One option is to replace all national bond issues with bonds
jointly backed by all the countries in the euro area, report the
Financial Times, Wall Street Journal and Reuters. This would make euro
area countries liable for each others’ debts and require extensive
changes to the EU treaty.
Although this idea would be tough to sell politically, in the
Commission’s analysis it would have the advantage of creating a huge
pool of debt that would rival the US treasuries market in size.
At the other extreme, euro area countries could quickly issue
‘eurobonds’, or ‘stability bonds’ as the Commission calls them, if they
were only partly backed by guarantees from other governments and there
were a cap on the volume of such bonds that countries could issue.
An intermediate option presented by the Commission is the
so-called, ‘blue bond’ and ‘red bond’ proposal. Under this approach,
which might require some limited treaty changes, national governments
would be able to issue ‘blue’ Eurobonds that enjoy the collective
backing of other euro area member states up to a certain percentage of
their GDP, and thereafter issue ‘red’ bonds for which they alone are
liable.
The Commission will present its study on Wednesday along with
proposals for new economic governance legislation that, if approved by
EU lawmakers, would give the Brussels-based executive arm of the
European Union more economic surveillance powers and the authority to
vet national budgets.
— Brussels bureau +32(0)495228374; email pkoh@marketnews.com
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