Abstract:This paper proposes that all new euro area sovereign borrowing be in the form of jointly guaranteed Eurobonds. To avoid classic moral hazard problems and to insure the guarantors against default, each country would pay a risk premium conditional on economic fundamentals to a joint debt management agency. This suggests that these bonds be called 'Euro-insurance-bonds'. While the sovereign debt markets have taken increasing account of the economic fundamentals, the signal to noise ratio has been weakened by huge… Show more
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