The purported advantages of corona bonds over the ESM are meagre to non-existent, says Friedrich Heinemann (EconPol Europe, ZEW). The challenge we face is to contain the spread of COVID-19 while stabilising the economy and ensuring eurozone states have sufficient liquidity and the ESM is a...

The purported advantages of corona bonds over the ESM are meagre to non-existent, says Friedrich Heinemann (EconPol Europe, ZEW). The challenge we face is to contain the spread of COVID-19 while stabilising the economy and ensuring eurozone states have sufficient liquidity and the ESM is a...

With public debt-to-GDP levels now set to surpass post-war records and Italy’s ratio approaching levels reached in Greece on the eve of the country’s debt restructuring in early 2012, fears of a return of the sovereign debt crisis have emerged.

The long-term fiscal and economic damage of eurobonds in a rule-based fiscal architecture - as history corroborates - would be greater than the historical challenge of the coronavirus pandemic, unless there is a political union in Europe.

Corona bonds are feasible and important to preserve the European project. We set out a number of principles that might serve as a blueprint for the European institutions. Importantly, Corona bonds could be issued through a new public law entity and include all the safeguards required for the...

Well-designed eurobonds would lower financing costs for many euro area countries while hardly or not increasing the costs for the others. These bonds should have an explicit guarantee from the ECB. These bonds could be used up to a limit of GDP (a low number of 10-25% of GDP would allow to...

We propose an additional funding tool for the collective effort against the COVID-19 pandemic and its economic fallout by issuing European Corona Solidarity Bonds (ECSBs) which are backed by revenues on a new EU-wide universal tax on financial assets, collected at the source.To combat the...

The paper shows that the introduction a Eurobond together with fiscal capacity at the centre would produce macro-stabilisation benefits both for the ‘core' and ‘periphery' of the Eurozone and would also achieve a rebalancing of the policy mix away from monetary towards fiscal stimulus. To...

This paper offers two new explanations for banks' home bias in government bond holdings: a sovereign-based rating cap on corporates and the existence of a ‘bank tax'. These are complementary to the four explanations offered in the literature: risk shifting, gambling for resurrection, moral...

When monetary and fiscal policy are conducted as in the euro area, output, inflation, and government bond default premia are indeterminate according to a standard general equilibrium model with sticky prices extended to include defaultable public debt. With sunspots, the model mimics the recent...

This paper explains and evaluates three proposals to create "safe assets" for the euro area based on sovereign bonds, in which sovereign risk is limited through diversification and some form of seniority. These assets would be held by banks and other financial institutions, replacing...

This paper assesses the consequences of implementing a joint liability debt system in a two-country small open economy model. With joint liability a default of one country makes the other participant liable for its debt. The results highlight a trade-off between the contagion risk, in the sense...

The economic crisis triggered by the coronavirus exposed the gaps in the European Monetary Union (EMU) governance, creating fears to repeat the sovereign debt crisis. In view of the magnitude of the crisis and the financial interdependence inside that union, strong policy coordination and...

This work presents an original proposal for the reform of the Eurozone architecture according to an approach based on risk sharing (aiming to reach in the long-term the mutualization of public debt). The proposal envisages a new role for the European Stability Mechanism (ESM) which should...

Corona-Gesundheitsschock – Seuchengefahr für die Menschheit -- Weltweite Wirtschaftsinstabilität -- Risiko der Euro-Zerfallsdynamik und EU-Aspekte -- Impfförderungsaufgaben und Kooperation sowie globale Führungsfragen.