The paper examines proposals for euro bonds. The aim is to highlight the broader context of various proposals and, in particular, to assess their impact less as a solution to the problems of the current economic and financial conjuncture and, more, to focus on their long-term consequences for...

Market liquidity is of value to both investors and issuers of securities, and is therefore a crucial factor in asset pricing. For the important asset class of Eurobonds, significant feedback from liquidity to pricing is established, and it is shown that bid-ask spreads (a proxy for market...

The growing asymmetry in the size of fiscal imbalances poses a serious challenge to the macroeconomic stability of the Euro Area (EA). We show that following a contractionary shock, the current monetary and fiscal framework weakens economic growth even in lowdebt countries because of the zero...

The euro crisis was fueled by the diabolic loop between sovereign risk and bank risk, coupled with cross-border flight-to-safety capital flows. European Safe Bonds (ESBies), a union-wide safe asset without joint liability, would help to resolve these problems. We make three contributions. First,...

This paper proposes a methodology to price bonds jointly issued by a group of countries—called Eurobonds in the euro-area context. We consider two types of bonds: the first is backed by several and joint (SJG) guarantees, the second features several but not joint (SNJG) guarantees. A crucial...

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...

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...

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...

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.

The paper discusses the most noteworthy measures taken or yet to be taken by the EU to combat the coronavirus crisis. Basically, the measures fall into four categories: (i) flexible application of EU rules that could hinder member states in their strenuous efforts to save their national...

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...

Wo zeigt sich bereits heute eine Haftungsunion? -- Inwiefern ist der Wiederaufbaufonds die Blaupause für einen fiskalisch-zentralistischen Europäischen Währungsfonds? -- Kommt ein Schuldenerlass? -- Sind griechische „Geuros“ und italienische „Minibots“ als Regierungsgeld die Lösung?...

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 appearance of negative bond yields presents significant challenges for the fixed income markets, which mainly concern related forecasting models. The Nelson-Siegel-Svensson model (NSS) is one of the models that is most frequently used by central banks to estimate the term structure of...

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 evaluates four approaches to creating "safe assets" or asset portfolios for the euro area: (1) a diversified portfolio of senior tranches of sovereign debt ("national tranching"); (2) a senior security backed by a diversified pool of national sovereign debt ("ESBies"); (3) debt issued...

Covered bonds and senior bonds are important securities for fixed income investors. Senior bonds are unsecured, while covered bonds are secured and backed by collateral. Our results show that collateral reduces the total risk in individual bonds by more than 70%. Compared to diversified...

This paper illustrates the phenomenon of overshooting yields on eurobonds issued by emerging and developing countries in the context of COVID-19. Using panel data from 48 emerging and developing countries, the results show that daily reports of confirmed cases have led to increases in yields and...