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Sovereign Bond-Baked Securities in EMU:Do they mean accrued safety in the European sovereign debt market or simply a way to ‘privatize’ public debt?

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  • Costa Cabral, Nazaré

Abstract

The aim of this article is to verify whether the creation of safe assets (sovereign bond-backed securities, SBBS) proposed in 2012 by the so-called group of ‘euro-nomics’ is a way to promote financial safety and risk-sharing in the EMU. In particular, attention is given to the shortcomings associated with the process of securitization. This is important, because securitization was, prior to the subprime crisis, considered an innovative means of increasing safety in private debt markets. The question is whether sovereign debt is a candidate for securitization and, if so, what implications this carries over to the debt structure itself and respective contractual design. My conclusion is that the creation of SBBS really implies a ‘privatization’ of sovereign debt, with advantages to the functioning of financial markets in ‘normal’ times but with possible insufficiencies in moments of financial distress. Moreover, lessons from the subprime crisis should not be forgotten.

Suggested Citation

  • Costa Cabral, Nazaré, 2020. "Sovereign Bond-Baked Securities in EMU:Do they mean accrued safety in the European sovereign debt market or simply a way to ‘privatize’ public debt?," MPRA Paper 102248, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:102248
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    References listed on IDEAS

    as
    1. Sérgio Gonçalves Cabo, 2017. "Sovereign Debt Restructuring in a Monetary Union: The Case of the Euro Area Member States," Financial and Monetary Policy Studies, in: Nazaré da Costa Cabral & José Renato Gonçalves & Nuno Cunha Rodrigues (ed.), The Euro and the Crisis, pages 173-195, Springer.
    2. Zettelmeyer, Jeromin & Leandro, Ã lvaro, 2018. "The Search for a Euro Area Safe Asset," CEPR Discussion Papers 12793, C.E.P.R. Discussion Papers.
    3. Bulow, Jeremy & Rogoff, Kenneth, 1989. "Sovereign Debt: Is to Forgive to Forget?," American Economic Review, American Economic Association, vol. 79(1), pages 43-50, March.
    4. Lannoo, Karel & Thomadakis, Apostolos, 2019. "Rebranding Capital Markets Union: A market finance action plan," ECMI Papers 500, Centre for European Policy Studies.
    5. Martin Hellwig, 2009. "Systemic Risk in the Financial Sector: An Analysis of the Subprime-Mortgage Financial Crisis," De Economist, Springer, vol. 157(2), pages 129-207, June.
    6. Satyajit Chatterjee & Burcu Eyigungor, 2015. "A Seniority Arrangement for Sovereign Debt," American Economic Review, American Economic Association, vol. 105(12), pages 3740-3765, December.
    7. Fernández, Raquel & Martín, Alberto, 2014. "The Long and the Short of It: Sovereign Debt Crises and Debt Maturity," CEPR Discussion Papers 10322, C.E.P.R. Discussion Papers.
    8. Nazaré da Costa Cabral & José Renato Gonçalves & Nuno Cunha Rodrigues (ed.), 2017. "The Euro and the Crisis," Financial and Monetary Policy Studies, Springer, number 978-3-319-45710-9, June.
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    Keywords

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    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G01 - Financial Economics - - General - - - Financial Crises
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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