Can a reliable framework for sovereign-backed securities be established?

This Intereconomics article is available for free at this page after an embargo period of two years. Reading it before then is possible via SpringerLink.

Further information about Intereconomics

Intereconomics publishes papers dealing with economic and social policy issues in or affecting Europe. The journal consists of the sections Editorial, Forum, Articles, and Letter from America.

The Editorial contains brief comments on current questions of economic policy.

In the Forum, several authors (researchers, politicians, representatives of trade unions and of employers associations, etc.) voice their opinions on one particular current economic policy problem.

The Articles deal with economic policy issues and trends. They are mostly written by economic researchers.

In the Letter from America, an economist from the US provides analysis of economic issues of transatlantic interest.

Intereconomics has an editorial process which allows it to quickly publish timely papers while they can still inform and influence policy makers. The editorial board of Intereconomics works in close cooperation with the editorial board of its sister publication Wirtschaftsdienst – Zeitschrift für Wirtschaftspolitik, which is published in German.Abstract:

The European Commission has proposed the introduction of sovereign-backed securities (SBSs) as a class of safe assets for the euro area. SBSs are generated by an issuing agency that would purchase a representative portfolio of national sovereign bonds from the euro area. Purchases are financed by issuing (at least) two types of structured bonds: a risk-free senior SBS tranche and a risky junior SBS tranche.

Overall, we recognise that the SBS concept has the potential to improve financial stability and financial integration in the euro area. However, we highlight several potentially severe technical and political problems. Most important for the SBS concept to function properly are the de-privileging of national sovereign bonds in bank regulation, rules to ensure conditionality in times of crisis and measures to prevent disincentives for national public finances. If such conditions remain elusive, we advise against the introduction of SBSs.

• Primary Source

Intereconomics: Archive http://archive.intereconomics.eu/years/

SpringerLink: Intereconomics http://link.springer.com/journal/10272

---