The European Union’s (EU) responses to the sovereign debt crises of the past few years have met with only limited success. Emergency measures like the creation of the European Financial Stability Facility (EFSF) and the European Financial Stabilization Mechanism (EFSM) have satisfied the urgent need for financial support facilities but are merely symptom-management tools. More lasting legislative reforms intended to prevent another crisis from occurring, such as the “six-pack,” fiscal compact, and “two-pack,” focus extensively on improving the behavior of irresponsible borrowers but fail to address any of the deep structural deficiencies in the European financial system.
This brief presents the case for eurobonds as an alternative means of dealing with Europe’s debt problems, one which has the potential to both dissuade profligate borrowing as well as mitigate Europe’s systemic fragilities. It proceeds in four parts: the first provides an overview of the structural and behavioral problems at the heart of the sovereign debt crisis, the second and third show how eurobonds could ameliorate some of Europe’s structural problems while incentivizing better fiscal behavior, and the fourth concludes by assessing the current state of play in the eurobond debate.
- Three Problems
- Eurobonds and Structural Problems
- Eurobonds and Market Discipline
- The State of Play