Stability Bonds Magdalena Lewandowska Economic Analyst European - PowerPoint PPT Presentation

Stability Bonds Magdalena Lewandowska Economic Analyst European Commission

Stability bonds  Common issuance of sovereign bonds among the Member States of the euro area  In public discussion called "Eurobonds"  In Green Paper called "Stability bonds" as the Commission considers that the main feature of such an instrument would be enhanced financial stability in the euro area 2

Green Paper • On 23 November 2011 the European Commission published the Green Paper on the feasibility of introducing Stability Bonds • Objective: launching a broad public consultation on the concept of Stability Bonds and replying to the European Parliament's request for a report on Eurobonds 3

Stability Bonds - potential benefits  deepening the internal market and render capital markets more efficient  increasing the stability and shock resilience of the financial sector and of government financing  raise the attractiveness of euro-area financial markets and the euro at global level  reduce the impact of excessive market fluctuations on sovereign borrowing costs 4

Stability Bonds - preconditions  Limiting moral hazard with substantially reinforced fiscal surveillance and policy coordination as an essential counterpart  Possibly - changes to the EU Treaty: as regards governance and surveillance of economic and fiscal policies and as regards Article 125, the non- bail out clause (depending on the approach) 5

Stability Bonds - options 1. full substitution of national issuance by Stability Bond issuance, with joint and several guarantees 2. partial substitution of national issuance by Stability Bond issuance, with joint and several guarantees 3. partial substitution of national issuance by Stability Bond issuance, with several but not joint guarantees 6

Stability Bonds – approach 1 • Full substitution of national bonds by stability bonds, backed by joint and several guarantee:  ambitious  strong potential positive effects on stability and integration  high risk of moral hazard  need for significant Treaty changes 7

Stability Bonds – approach 2 • Partial substitution of national bonds by stability bonds, backed by joint and several guarantee:  kind of “middle option”  blue/red proposal, role of capital markets for discipline enhancement  possible enhancements, including seniority over remaining newly issued national bonds 8

Stability Bonds – approach 3 Partial substitution of national bonds by stability bonds, backed several guarantee:  smaller effects on stability and integration  less risk of moral hazard  more rapidly deployable(similar to EFSF bonds)  possible credit enhancements (collateral, seniority …) 9

Stability Bonds Any type of Stability Bond would have to be accompanied by a substantially reinforced fiscal surveillance and policy coordination as an essential counterpart, so as to avoid moral hazard and ensure sustainable public finances and to support competitiveness and reduction of harmful macroeconomic imbalances. 10

• Thank you 11