DP17217 Creating a Safe Asset without Debt Mutualization: the Opportunity of a European Debt Agency

Author(s): Massimo Amato, Everardo Belloni, Carlo A. Favero, Lucio Gobbi
Publication Date: April 2022
Keyword(s): Debt Management, European Debt Agency, European Safe Assets
JEL(s): H12, H63, H81
Programme Areas: International Macroeconomics and Finance, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17217

This paper analyses the potential of a European Debt Agency (EDA) as an efficient debt management institution for the Euro area. The simulation of prices and quantities that would have been observed in a scenario with an operational EDA illustrates that there have been fluctuations in bond prices that EDA would have been able to prevent. Moreover, due to the less volatile price dynamics, EDA would have been capable to absorb the entire eurozone debt while reducing its size. This evidence speaks in favour of EDA as an institutional debt management tool for hedging Member States financing from market sentiment vagaries; creating a European Safe Asset; unburdening ECB from debt management and managing efficiently the implementation of fiscal rules.