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Eurobonds: A Quantitative Approach

Author

Listed:
  • Baglioni Angelo

    (Catholic University of Milan, Via Necchi 5, Milan, Italy)

  • Cherubini Umberto

    (University of Bologna, Department of Statistics, Viale Filopanti 5, Bologna, Italy)

Abstract

The structural model of sovereign credit risk introduced in an earlier paper by the authors is applied here to measure the impact of introducing Eurobonds. Tranching (i. e. splitting the public debt into a senior and a junior tranche) is coupled with a cross-guarantee among eurozone countries and with a cash transfer. We show that Eurobonds can reduce the overall cost of servicing the public debt for some (high debt) countries in the euro area without increasing the cost for other countries. Moreover, they are likely to give governments an incentive to curb their deficits, due to the higher marginal cost of debt.

Suggested Citation

  • Baglioni Angelo & Cherubini Umberto, 2016. "Eurobonds: A Quantitative Approach," Review of Law & Economics, De Gruyter, vol. 12(3), pages 507-521, November.
    • Handle: RePEc:bpj:rlecon:v:12:y:2016:i:3:p:507-521:n:3
    DOI: 10.1515/rle-2016-0041
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    References listed on IDEAS

    as
    1. Jakob von Weizsäcker & Jacques Delpla, 2010. "The Blue Bond Proposal," Policy Briefs 403, Bruegel.
    2. Jean Tirole, 2015. "Country Solidarity in Sovereign Crises," American Economic Review, American Economic Association, vol. 105(8), pages 2333-2363, August.
    3. Carlo Favero & Alessandro Missale, 2012. "Sovereign spreads in the eurozone: which prospects for a Eurobond? [Asset pricing with liquidity risk]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 27(70), pages 231-273.
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    Cited by:

    1. Badarau, Cristina & Huart, Florence & Sangaré, Ibrahima, 2021. "Macroeconomic and policy implications of eurobonds," International Review of Law and Economics, Elsevier, vol. 65(C).
    2. Giovanni Dosi & Marcello Minenna & Andrea Roventini & Roberto Violi, 2021. "Making the Eurozone work: a risk-sharing reform of the European Stability Mechanism," Annals of Operations Research, Springer, vol. 299(1), pages 617-657, April.
    3. Engwerda, Jacob & van Aarle, Bas & Anevlavis, Tzanis, 2019. "Debt stabilization games in a monetary union: What are the effects of introducing eurobonds?," Journal of Macroeconomics, Elsevier, vol. 59(C), pages 78-102.

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    More about this item

    Keywords

    Eurobonds; sovereign debt; credit risk; interest rates;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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