Sovereign Bond-Baked Securities in EMU:Do they mean accrued safety in the European sovereign debt market or simply a way to ‘privatize’ public debt?

Nazaré Costa Cabral ()

MPRA Paper from University Library of Munich, Germany

Abstract: The aim of this article is to verify whether the creation of safe assets (sovereign bond-backed securities, SBBS) proposed in 2012 by the so-called group of ‘euro-nomics’ is a way to promote financial safety and risk-sharing in the EMU. In particular, attention is given to the shortcomings associated with the process of securitization. This is important, because securitization was, prior to the subprime crisis, considered an innovative means of increasing safety in private debt markets. The question is whether sovereign debt is a candidate for securitization and, if so, what implications this carries over to the debt structure itself and respective contractual design. My conclusion is that the creation of SBBS really implies a ‘privatization’ of sovereign debt, with advantages to the functioning of financial markets in ‘normal’ times but with possible insufficiencies in moments of financial distress. Moreover, lessons from the subprime crisis should not be forgotten.

Keywords: safe assets; sovereign bond-backed securities; securitization; subprime crisis; sovereign debt (search for similar items in EconPapers)
JEL-codes: E6 G01 G1 G2 H63 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-eec, nep-mac and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:102248

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