Eurobonds: A Quantitative Approach

Angelo Baglioni and Cherubini Umberto ()
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Cherubini Umberto: University of Bologna, Department of Statistics, Viale Filopanti 5, Bologna, Italy

Review of Law & Economics, 2016, vol. 12, issue 3, 507-521

Abstract: The structural model of sovereign credit risk introduced in an earlier paper by the authors is applied here to measure the impact of introducing Eurobonds. Tranching (i. e. splitting the public debt into a senior and a junior tranche) is coupled with a cross-guarantee among eurozone countries and with a cash transfer. We show that Eurobonds can reduce the overall cost of servicing the public debt for some (high debt) countries in the euro area without increasing the cost for other countries. Moreover, they are likely to give governments an incentive to curb their deficits, due to the higher marginal cost of debt.

Keywords: Eurobonds; sovereign debt; credit risk; interest rates (search for similar items in EconPapers)
JEL-codes: G12 H63 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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DOI: 10.1515/rle-2016-0041

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