Eurobonds and the European Debt Trilemma

Ugo Panizza

No 15-2026, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: A well-designed European sovereign debt architecture should avoid debt mutualization, create a large safe asset, and reduce the risk of self-fulfilling crises. This note derives a European debt trilemma, showing that no feasible architecture can simultaneously achieve all three objectives. The note then develops a simple model to evaluate the Blanchard and Ubide (2025) proposal. The model establishes a safety condition justifying the 25 percent replacement threshold, average cost neutrality as a consequence of Modigliani–Miller, and, most importantly, strengthened fiscal discipline at the margin, since the rate on national bonds is strictly more sensitive to domestic fiscal conditions than the rate it replaces.

Keywords: Eurobonds; European Safe Asset; Fiscal Discipline; Debt Seniority (search for similar items in EconPapers)
JEL-codes: E44 F34 F36 H63 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2026-05-18
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Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heidwp15-2026

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