European Safe Assets: Past, Present, and Future

Fiscal Federalism in the European Union (Alicia Hinarejos and Robert Schütze, eds, Forthcoming)

21 Pages Posted: 19 Jul 2021 Last revised: 15 Nov 2022

See all articles by Sebastian Grund

Sebastian Grund

International Monetary Fund (IMF) - Legal Department

Michael Waibel

University of Vienna - Faculty of Law

Date Written: June 16, 2021

Abstract

During and in the aftermath of the euro area sovereign debt crisis, many considered a common safe asset as a necessary condition for a stable European monetary union (EMU). However, intellectual efforts had far outstripped tangible policy action, until the pandemic turned the political debate upside down. Even though euro area governments agreed on the creation of the European Stability Mechanism (ESM), a lender-of-last resort to members of the currency union, a mechanism for (substantial) joint borrowing has been absent to date, as has been common deposit insurance, common unemployment insurance or other automatic stabilizers. In short, EMU suffers from the congenital defect of a lack of significant fiscal capacity.

Against this backdrop, this Chapter investigates the past, present, and future of safe assets in the EU. It is structured as follows. Section 2 reviews past borrowing programs and the safe assets these have produced. We show that the NGEU’s financing mechanism is not new; rather it is a scaled-up version of past EU borrowing programs. The Section also discusses the euro area’s two borrowing mechanism via separate supranational issuer: the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM). Section 3 zooms in on the legal aspects of EU safe assets, highlighting both commonalities and differences between the various debt issuance programs and analyzing the pertinent legal features of the debt instruments the EU has relied on. Section 4 concludes.

Keywords: sovereign debt; safe assets; European Monetary Union; euro area sovereign debt crisis; European Stability Mechanism; Next Generation EU program

JEL Classification: F34, H63, K33, N14, N24

Suggested Citation

Grund, Sebastian and Waibel, Michael, European Safe Assets: Past, Present, and Future (June 16, 2021). Fiscal Federalism in the European Union (Alicia Hinarejos and Robert Schütze, eds, Forthcoming), Available at SSRN: https://ssrn.com/abstract=3887534 or http://dx.doi.org/10.2139/ssrn.3887534

Sebastian Grund

International Monetary Fund (IMF) - Legal Department ( email )

700 19th St NW
Washington, DC 20431
United States

Michael Waibel (Contact Author)

University of Vienna - Faculty of Law ( email )

Schottenbastei 10-16
Vienna, A-1010
Austria

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
176
Abstract Views
986
Rank
320,927
PlumX Metrics