Last week, the ECB showed that, despite a full year of opportunities, the euro has made virtually no headway in the global economy. Although global sales of euro-denominated debt securities reached a new record high, political disagreements continue to hinder further progress. Globalization requires an increase in the eurozone’s total debt.
“Strengthening the euro’s international role will not happen on its own,” said ECB Executive Board member Piero Cipollone. He emphasized that Europe must work purposefully toward achieving this goal. Expanding joint issuances of sovereign bonds by eurozone countries will help overcome doubts regarding the fragmented eurozone government bond market, create a significant “safe asset” for investment across the EU, and attract investors from beyond its borders, ProFinance.Ru reports, citing Thomson Reuters.
Globalization of the Euro
One way to change the situation is to expand joint sovereign bond issuances by eurozone countries. This would help overcome doubts regarding the fragmented eurozone government bond market, create a significant “safe asset” for investment across the EU, and attract investors from beyond its borders.
Despite ongoing resistance in Germany and other countries, there is broad support within the ECB for the idea of expanding the pool of safe assets.
A month ago, the International Monetary Fund urged European governments to view innovation, energy, and defense as pan-European goods that should be financed through joint borrowing. This is similar to how EU joint bonds were used for post-pandemic programs.
In recent years, many ideas have been proposed to expand the pan-European bond market, but one of them caught the attention of policymakers last year and was reintroduced by its authors over the past month.
“Blue” chips
Last June, Olivier Blanchard, former chief economist of the IMF, and Ángel Ubide, a senior executive at Citadel, proposed replacing up to a quarter of each member state’s GDP in government debt with jointly guaranteed and more reliable “blue” Eurobonds.
Instead of discussing the complex issue of credit allocation, which dominated discussions during the European debt crisis more than 10 years ago, they focused on how to expand the market and offer a viable competitor to U.S. Treasury bonds.
This is a difficult task, as the total outstanding debt currently stands at only about one trillion euros. However, according to the publication, the idea of issuing “blue bonds” could increase this amount fivefold.
In republishing their proposal, Ubide and Blanchard emphasized that the need to stimulate a joint Eurobond market is even more urgent now than it was a year ago. Doubts about NATO’s future make strategic autonomy a critical priority, and interest in this plan is growing within the ECB.
“European leaders must speak openly about this: if they decide not to stimulate the Eurobond market, they will choose higher financing costs, lower growth potential, and weaker strategic autonomy,” they concluded, adding: “Time is running out.”
