Europe, public debts, and safe assets: the scope for a European Debt Agency

Massimo Amato (), Everardo Belloni, Paolo Falbo and Lucio Gobbi
Additional contact information
Massimo Amato: Bocconi University
Everardo Belloni: Politecnico di Milano SoM
Paolo Falbo: University of Brescia

Economia Politica: Journal of Analytical and Institutional Economics, 2021, vol. 38, issue 3, No 3, 823-861

Abstract: Abstract The Covid-19 crisis has radically changed the game for world and EU-economies, and urged for a reappraisal of the guidelines for a healthy management of public expenditure. This requires a deep rethinking of the role of public debt in modern capitalistic economies and of efficient, equitable and politically viable ways of financing it. This paper outlines the main operating framework of a Debt Agency tasked with the management of the Eurozone sovereign debts and the creation of a truly European safe asset. The framework leverages on the potential irredeemable nature of sovereign debts in order to build a common bond. By structurally filtering liquidity risk, the Debt Agency can price the Member States’ funding costs by referring only to their credit risk, as defined by EU agreed rules. The common bond issued by the Debt Agency thus avoids mutualisation by design; hence, it can be directly bought by the ECB. Due to its structural intertemporal sustainability, the Debt Agency’s framework delineated in this paper can serve as a benchmark for institutional and political decisions. In this perspective, a counterfactual exercise has been conducted in order to evaluate the future potential impact of the Debt Agency as well as the past distortions in market pricing of Member States’ fundamental risk due to market mispricing of the liquidity risk.

Keywords: European Debt Agency; Safe asset; Eurobonds; Public debt; Perpetual loans (search for similar items in EconPapers)
JEL-codes: G2 G28 H63 H81 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://link.springer.com/10.1007/s40888-021-00236-6 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:epolit:v:38:y:2021:i:3:d:10.1007_s40888-021-00236-6

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/40888

DOI: 10.1007/s40888-021-00236-6

Access Statistics for this article

Economia Politica: Journal of Analytical and Institutional Economics is currently edited by Alberto Quadrio Curzio

More articles in Economia Politica: Journal of Analytical and Institutional Economics from Springer, Fondazione Edison
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().