LONDON/BRUSSELS - Policymakers looking to persuade Germany and other wealthy euro zone countries to pool their debt with less well-off neighbors may need to keep things short and simple.
Plans for a synthetic common bond, comprised of debt from the 19 euro zone countries, have stalled since they were first unveiled by the European Commission last year, prompting officials to look at other options, including short-term euro bills. Bishop said the short-term nature of his proposal, which involves setting up a new body, dubbed the Temporary Eurobill Fund, made it an ideal testing vehicle. Under his proposal, a common bill with a maturity of two years would be issued. He is working on another version with a maturity of six months.
“Given the political opposition to a euro bond, a safe euro zone bill full stop would be seen as a good step in the right direction,” said David Owen, chief European economist at Jefferies in London.“Once such a so called ‘safe asset’ is in place, calls for mutualization will be inevitable. Therefore, we should not even start going down that path,” said German EU lawmaker Markus Ferber, who leads the largest conservative grouping in the economic committee of the European Parliament.
The average European bank now has sovereign debt exposure equal to 170 percent of its core tier one capital, a key measure of a bank’s financial strength, according to a Deutsche Bank analysis. That is more than triple the exposure of U.S banks.
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