Creating a Euro Area Safe Asset Without Mutualizing Risk (Much)

40 Pages Posted: 7 Aug 2019

See all articles by Alvaro Leandro

Alvaro Leandro

Peterson Institute for International Economics

Jeromin Zettelmeyer

Bruegel; CEPR

Multiple version iconThere are 2 versions of this paper

Date Written: 2019


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 concentrated exposures to their own sovereigns. The paper focuses on three ideas: (1) to create multitranche "sovereign bond-backed securities" (SBBS), of which the senior tranche would constitute a safe asset; (2) to create a senior, publicly owned financial intermediary that would issue a bond backed by a diversified portfolio of sovereign loans ("E-bonds"); and (3) to issue sovereign bonds in several tranches and induce banks to hold a diversified pool of senior sovereign bonds ("multitranche national bond issuance"). Public attention (including public criticism) has so far focused on the first idea; the other two have not yet been seriously debated. We find that none of the competing proposals entirely dominates the others. SBBS do not deserve most of the criticism to which they have been subjected. At the same time, E-bond and multi-tranche national bond issuance have several interesting features--including inducing fiscal discipline--and warrant further exploration.

Keywords: safe assets, sovereign debt, banking crisis, euro crisis, eurobonds, ESBies, SBBS, E-bonds

JEL Classification: F330, F360, G210, H630

Suggested Citation

Leandro, Alvaro and Zettelmeyer, Jeromin, Creating a Euro Area Safe Asset Without Mutualizing Risk (Much) (2019). CESifo Working Paper No. 7766, Available at SSRN: or

Alvaro Leandro (Contact Author)

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States
2024541307 (Phone)

HOME PAGE: http://

Jeromin Zettelmeyer


Rue de la Charité 33
B-1210 Brussels Belgium, 1210

HOME PAGE: http://

CEPR ( email )

United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics