Eurozone countries are facing a stalemate in the completion of the Banking Union, at the heart of which is the regulation of banks’ sovereign exposures. This column introduces the latest issue of European Economy, which examines the interactions between banks and sovereign risk, the build up of sovereign risk during the crisis, and the policy proposals on the table to severe the loop and, more broadly, to finally complete the Banking Union.
Giorgio Barba Navaretti, Giacomo Calzolari, Alberto Pozzolo, 15 July 2016
Luis Garicano, Lucrezia Reichlin, 14 November 2014
The ECB seems to be edging towards QE, but faces a quandary on what to buy. This proposal suggests that the ECB buy ‘Safe Market Bonds’. These would be synthetic bonds formed by the senior tranches of EZ national bonds combined in GDP-weighted proportions. The ECB would merely announce the features of the synthetic bonds it will purchase. The market would create the bonds in response to this announcement, thus avoiding new EZ-level institutions or funds.
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