EU Commission Says Euro Area Should Consider Safe Asset Creation

  • Treasury-like securities could help currency bloc: commission
  • Regulatory treatment of sovereign bonds may also need changes

The euro area should consider issuing U.S. Treasury-like securities that would help the currency bloc’s lenders diversify their assets and break a harmful link with their sovereigns, the European Commission said in a report published Wednesday.

“A European safe asset, denominated in euro and sizable enough to become the benchmark for European financial markets, could create numerous benefits for financial markets and the European economy,” the EU’s executive arm said in a paper outlining potential options for deepening euro-area integration. The specifics of the potential instrument need to be further discussed, as it raises “a number of complex legal, political and institutional questions,” the commission said.

While debt mutualization in the euro area has been proposed by governments, institutions and analysts, many of the currency bloc’s nations, including Germany, have resisted the idea of putting their taxpayers on the hook. The debate about further economic integration has regained momentum following Emmanuel Macron’s election victory in France, even as the commission acknowledges preparatory work is still needed before more ambitious legislative proposals can be tabled.

Wednesday’s “reflection paper is an invitation for everyone to express their views on the future of our economic and monetary union, as part of the broader debate on the future of Europe.” The options listed by commission staff for the period between 2020 and 2025 include:

  • Creating a euro area Treasury
  • Creating a European Monetary Fund
  • Appointing a full-time chair of euro-area finance ministers’ meetings
  • Unified external representation of the euro area, including to the International Monetary Fund
  • Developing and issuing sovereign bond-backed securities for the euro area
  • Changes to the regulatory treatment of sovereign exposures

More immediate priorities that must be completed by 2019 include the establishment of a financial backstop to the single resolution fund, measures to reduce risks in the financial sector further and the European Deposit Insurance Scheme, according to the commission. “It is time to look afresh at where our union should be in the next decade, and to lay the common ground for such a future,” the commission said.

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