Transforming Sovereign Debts into Perpetuities through a European Debt Agency
32 Pages Posted: 24 Apr 2020
Date Written: April 18, 2020
This paper outlines the main operating framework of a Debt Agency (DA) for the management of the Eurozone sovereign debts. The framework leverages on the potential irredeemable nature of sovereign debts in order to build a common bond. Structurally filtering liquidity risk, the DA can price the Member States' installments by referring only to their fundamental risk. The common bond issued by the DA then avoids mutualisation by design, hence it can be directly bought by the ECB. Thanks to its structural intertemporal sustainability, the DA framework sketched here can serve as a benchmark for institutional and political decisions.
Keywords: Safe Asset, Debt Agency, Eurozone
JEL Classification: E42, E44, E62
Suggested Citation: Suggested Citation