ESRB High-Level Task Force on Safe Assets by European Systemic Risk Board
EU Commission: Communication to the European Parliament, the council, the European Central Bank, the European Economics and Social Committee and the Committee of the Regions on Completing the Banking Union
Background Paper: “ESBies: Safety in the Tranches”
Reflection Paper on the Deepening of the Economics and Monetary Union
Our proposal for European Safe Bonds (ESB) is now available:
- Executive summary
- Full proposal
- Comparing ESB, Eurobonds, Redemption Fund, Eurobills and Blue-Red Bonds
We welcome comments, which may be incorporated in future revisions of this proposal.
By Samaila August 4, 2012 - 3:53 am
A fascinating popsroal, but I do have one small issue. Perhaps the primary appeal ofa0ESBies would be in their independence from the European political process, and in particular the strict weighting of bonds by GDP. However, as you rightly point out, this weighting couldn’t be maintained in cases where a particular eurozone country simply isn’t issuing enough bonds to satisfy the EDA’s requirements. I don’t feel that to say that the EDA would increase the weight of countries that are similiar to it in credit risk is sufficient to cover the possibility that such a scenario would be used to artificially increase the proportion of less creditworthy bonds in the portfolio. For one, even in the best of times, the phrase similar in credit risk is subjective, and in this case, neither of the two primary means of establishing credit risk would be suitable; market prices of bonds couldn’t be used as, were the EDA to hold 100% of bonds, they wouldn’t exist, and credit ratings couldn’t be used for fear that a European credit rating agency would be established to artificially increase ratings. Furthermore, even if an objective measure of credit risk were established, it would still be entirely likely than other countries with similar credit risk would also be in the position of not issuing enough bonds to satisfy the EDA’s requirements.An alternative approach would be to simply treat the weighting as inviolable, and commit to issuing new debt as the EDA requires it, even if that country wouldn’t be issuing debt otherwise. It may seem a bit perverse to force countries to maintain a certain level of debt, but their overall indebtedness wouldn’t be affected so long as they are effectively swapping new debt for a safe, liquid, euro-denominated asset like the ESB.
By Griseld August 2, 2012 - 2:59 am
one of the reasons America set up the Marshall Plan was to build mktears for its industries. We need to build all the eurozone’s economies to build a market for the goods produced. Some of the old industrial towns of eastern Germany need this support as much as say Greece. 6) Build up potential eurozone membersWe need to build up these economies, some of which have been badly managed, so that they can be readily integrated. Euro Structural PartnershipSo the ESP has two short term projects and a number of long term projects. Short termSet up a management structure and a eurobond issue to prevent debt crises and the talk of defaults. Long termSet up either an integrated euro financial system or an enforceable monitoring and controls on all euro-members to prevent the series of problems we are experiencing. In addition it needs to offer further bond issues to support the weaker economies and to develop growth. Long term aims for the euroThe management of the euro should have the following goals. 1) Stable so investors will see it as a good investment.2) Safe so that investors are confident that they will get their money back.3) Relatively low value to encourage exports and tourism and therefore growth.4) Potentially a world reserve currency the dollar can no longer be considered a safe, long term currency because of its deficit and the potentially erratic behaviour of some of its politicians. I am aware that some commodity producers, eg oil, have looked at the potential of pricing their products in euros as an alternative to the dollar. My speculation is that the dollar will gradually lose its dominance and that other currencies, including the euro, could be used in some regions. Will ESP get support?I note that China and some of Middle Eastern Sovereign Funds are, even with our debt crises, looking at investing in the euro as a way of balancing their investments. I feel that if we offer a constructive way of resolving the immediate debt problems, with a structure that looks like a reasonable long term strategy for stability and growth the funds will flow into the eurozone as a very safe haven. The risk will be that they may flow too fast risking an over-valued euro. Will the German voters buy ESP?I personally think that a long term strategy for sorting out the immediate debt problems will gain more support from voters than the continual bail-outs and the threat of defaults etc. If this can be done within a framework that will improve productivity and financial stability of the weaker economies and boost growth throughout the whole eurozone, particularly in the weaker areas of even the stronger economies would be easier to sell.
By [MarktWirtschaft] Stoppt den Euro der Lemminge, wir brauchen Eurobonds! « Wirtschaftswunder May 24, 2012 - 7:06 am
[…] mehr. Dabei können Eurobonds schneller kommen als gedacht. Ökonomen wie Markus Brunnermeier (ESBies und Video dazu) oder Yanis Varoufakis (Paper, Blogeintrag mit Video) haben Varianten entworfen, […]
By The Irish Economy » Blog Archive » Varieties of Eurobonds May 23, 2012 - 8:38 am
[…] officials (and many others). The euro-nomics group have been advocating the concept of “European Safe Bonds” (ESBies) that does not involve joint and several liability, while other proposals have also […]
By [MarktWirtschaft] Ein kleines nettes Osterei: Eine Art Euro-Bond « Wirtschaftswunder April 9, 2012 - 12:00 pm
[…] in diese Richtung. Wobei ich eher skeptisch über die schnellen Erfolgsaussichten bin, wenn Brunnermeier & Co vorschlagen, eine neue Wertpapiergattung zu etablieren. Vielleicht wären ESBies aber ein zweiter […]
By Rebalancing, monetary policy and ESBies – Kantoos Economics April 6, 2012 - 4:07 pm
[…] For interested readers, I recommend having a look at the website of the proposers. Want to share?FlattrShare on TumblrGefällt mir:Gefällt mirSei der Erste, dem dieser post […]
By Henry Kaspar October 5, 2011 - 1:58 pm
This is a nice proposal, but I have to doubts:
— the authors’ underlying assumption seems that the recovery value in case of a sovereign default would always be large enough to service debts equivalent to 60 percent of GDP. But how do the authors know that the recovery value would be large enough? Any uncertainty about this would compromise the perceived safety of ESBs.
— specifically, what if a country is structurally incompetitive and can resolve this only by leaving the euro? In this case it would seem unlikely that the recovery value is sufficient. The only solution seems to exclude bonds of structurally incompetitive countries from the ESB. But who decides what sovereign bonds go in and which ones stay out? And even if countries could be excluded from the ESB, what about future asymmetric shocks to the euro area that create unsustainbable competitiveness situations?
By Sumit August 2, 2012 - 1:35 am
So, the structured prducot as a whole is only self-sustaining if the premium on the ESBy tranche is greater than the discount on the bad tranche, right? Meanwhile, the Eurozone will need to put up additional funds as a backstop. What if it never balances out? There may be a clearing price for the bad tranche in the private market, but what if it isn’t high enough? Won’t the EDA need periodic injections of cash from the Eurozone to break even?
By Aseer September 12, 2012 - 12:00 am
For a system of any type to work you need feacdebk loops, in the old days, if the Greek economy was weak it’s currency would devalue.The Euro does not have this feacdebk at the National level so what is neededis an annual/monthly payment (not loan) from the Euro Countries whoare enjoying an export boom based on their artificially undervalued currency, to be paid’ to the countries suffering from the Euro exchange rate being artificially too high for them : An EME : a Euro-Mis-match-Exchange Fee.Calculating this amount gets more and more difficult every yearthat we move away from previously having had the national currencies – which will be the base of the calculation – of course the best way now to calculate this is to return to national currencies and let the markets decide the currency value – no bad idea to do this and stay there.The whole Euro thing was about creating a centralised Soviet system and ‘more power to Brussels’ is what is being recommended instead of the EME payments as the solution’… actually : “all part of the plan in the first place” if you ask me.But what they told us is that this Euro thing will prevent war in Europe. Well go to Germany , go to France and ask them what they think of the Greeks there is quite a lot of vile and bile being thrown at the lazy Greeks etc during thiscrisis it’s not war level but it’s in that direction it’s not being thrown at the Oh so clever Europcrats who invented this non-system without feacdebk loops who never even countenanced answering the vey sensible question asked of them by the British when they started it What happens if things go wrong . The Euro is either utter stupidity or a deliberate diabolical plan to create a Soviet Europe.As a side point, Germany is a Net Exporting Economy as is pointed out in the article, this means that people get paid say 100 Euro to make 10 cars and 8 cars are sold abroad so there are only 2 cars left in Germany costing 20 Euro and 100 Euro of wages in the economy but no inflation.This situation can be repeated using a different Financial system called NEFS : Net Export Financial Simulation and this will give the Germans all 10 cars for them to buy and enjoy using.
By Linds October 12, 2012 - 3:43 am
IN future, pelase do not refer to me as Dear Snootie for I will not represent anything to you except a dear pain’, and I find the term exceedingly chauvinistic.You spend the entirety of your posts trashing Americans. Reread them. Then you proceed to tell me that Human nature is the same everywhere che8re madame. Well, if it’s so, then why bother to direct your venom solely at American hypocrisy? The EU is set in service for the wealthy elite: any rhetoric otherwise is a blatant forgery of lies. A lot of eastern european countries and the PIIGS saw Europe as a sort of USA or infinite cow to milk. Morons. I’m afraid you have mistaken who is being milked by whom, Marc. It is the rich international elites who are settling in like vultures upon the poor. These same elites use national sovereign structure and international Bretton Woods institutions to do their bidding. Sickening.I’m referring to colonial interests, Marc, and global empire. The dollar was used to give America an unfair advantage worldwide: I have never palliated American sins. You have no right to call me a hypocrit.Why don’t you research France’s little venture in Nigeria to secure their uranium? I’m sure you are right: but your blatant disregard for criminal colonial acts worldwide in preference for some vitriol aimed at one country is ludicrous.The US military should abandon their bases and constrain their activities: but these activities do not proceed from a sovereign US base but instead from a sanctimonious international base firmly set in Europe through the work of the IMF and the UN.look it up
By Eman November 13, 2012 - 8:46 pm
This is a nice proposal, but I have to dotubs: the authors’ underlying assumption seems that the recovery value in case of a sovereign default would always be large enough to service debts equivalent to 60 percent of GDP. But how do the authors know that the recovery value would be large enough? Any uncertainty about this would compromise the perceived safety of ESBs. specifically, what if a country is structurally incompetitive and can resolve this only by leaving the euro? In this case it would seem unlikely that the recovery value is sufficient. The only solution seems to exclude bonds of structurally incompetitive countries from the ESB. But who decides what sovereign bonds go in and which ones stay out? And even if countries could be excluded from the ESB, what about future asymmetric shocks to the euro area that create unsustainbable competitiveness situations?
By Sichere Anleihen für Europa! – Kantoos Economics October 5, 2011 - 4:30 am
[…] Gruppe europäischer Ökonomen um den deutschen Princeton-Professor Markus Brunnermeier hat sich eine Lösung ausgedacht, die zu einem wichtigen Baustein der zukünftigen Eurozone werden sollte.1 Kurz gesagt benutzt man […]
By A viable architecture for the Eurozone | Greek Economists for Reform.com September 29, 2011 - 11:39 pm
[…] The Kathimerini article is available here. The article builds on work done by the Euro-nomics group composed of nine European academic economists: Markus Brunnermeier, Luis Garicano, Philip R. Lane, Marco Pagano, Ricardo Reis, Tano Santos, David Thesmar, Stijn Van Nieuwerburgh and Dimitri Vayanos. The group’s objective is to provide concrete, carefully considered, and politically feasible ideas to address the serious problems currently faced by the Eurozone. You can check out the group’s first proposal, on European Safe Bonds, or ESBies, here. […]
By Sarah McCabe September 28, 2011 - 7:47 pm
Really excellent proposal, you have thought out many of the practical issues preventing the Eurobond debate going forward. I’ve posted about ESBies on my blog, check it out: http://www.getthepennyrolling.blogspot.com
By Felix August 1, 2012 - 8:14 pm
This is a nice proposal, but I have to doutbs: the authors’ underlying assumption seems that the recovery value in case of a sovereign default would always be large enough to service debts equivalent to 60 percent of GDP. But how do the authors know that the recovery value would be large enough? Any uncertainty about this would compromise the perceived safety of ESBs. specifically, what if a country is structurally incompetitive and can resolve this only by leaving the euro? In this case it would seem unlikely that the recovery value is sufficient. The only solution seems to exclude bonds of structurally incompetitive countries from the ESB. But who decides what sovereign bonds go in and which ones stay out? And even if countries could be excluded from the ESB, what about future asymmetric shocks to the euro area that create unsustainbable competitiveness situations?
By Charles September 28, 2011 - 2:15 pm
So, the structured product as a whole is only self-sustaining if the premium on the ESBy tranche is greater than the discount on the bad tranche, right? Meanwhile, the Eurozone will need to put up additional funds as a backstop.
What if it never balances out? There may be a clearing price for the bad tranche in the private market, but what if it isn’t high enough? Won’t the EDA need periodic injections of cash from the Eurozone to break even?
By Keith August 2, 2012 - 7:21 am
The thing is Daniel that in Greece, a country with such a tuuerlbnt recent history,( two Balkan Wars, two World wars, a Civil War, an Asia Minor disaster, a Junta -backed by the USA) had all its people from the age of 45-50 and over, living in deprivation and poverty for decades Suddenly they get money during the ’80s booming years, and they go mad.Their Government encourages them to go mad and spend with no control, and so do the foreign Banks Now they blame them for being greedy and irresponsible..Hello..?? Where were you to manage them all those years..?? That is your role, to lead the nation, preferably by leading by example..Greece will heal only when this generation of over 45 leaves the political scene .But then my generation will come into power, that though educated, well traveled and well informed, they will still be living in poverty and deprivation because of the IMF/EU loan deals and the current crisis..Do you see a pattern here ??The northerners do not understand what Greece went through the past few decades..Sweden remained neutral during the two World wars, and collaborated with the Nazis in order to do that..They had peace and stability for much longer that enabled them to develop and progress Now they think of the Greeks of being corrupt and lazy Well if you had to endure what Greece went through during the Nazi occupation, believe me you would be the same too..Corruption is generated by deprivation over decades And it won’t go away, if we keep impoverishing Greece and make it pay for the benefit of the Europeans Greece was forced by the Nazis to take a loan in order them to finance their wars, and was never compensated by Germany..That made the country poorer for decades to come..Now Greece is asked again to pay up for the Europeans, in order to save the euro More poverty and deprivation on our nation so that Europe can benefit How do you expect Greece to ever recover and have stable politics and politicians that work for their people, if the people remain ignorant and poor through hardships? Please tell me