Creating a common safe asset without eurobonds

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Apostolos Thomadakis, Wim Boonstra

Europe needs a capital market that is sustainably integrated and as single as possible. This will not be achieved without a broad and solid foundation. The international position of the euro is stagnating close to historical lows, while the lack of a European-wide common safe asset highlights the fragmented nature of national government bond markets. Although collective issuance of government debt by member states through eurobonds seems to be unattainable for political reasons, there are other ways to arrive at a common safe asset. Debt issuance by the European Central Bank (ECB) and the European Union could play a constructive role here. By financing the European budget through bond issues and at the same time allowing the ECB to issue short-term money-market paper, Europe could tackle multiple challenges in one fell swoop.

Wim Boonstra is Senior Economist at Rabobank, and Professor in Economic and Monetary Policy at VU University Amsterdam. Apostolos Thomadakis, Ph.D., is Researcher at ECMI and CEPS.