Reviewing the Proposals for Common Bond Issuances by the Euro-Area Sovereign Under a Long-Term Perspective

The paper examines proposals for euro bonds. The aim is to highlight the broader context of various proposals and, in particular, to assess their impact less as a solution to the problems of the current economic and financial conjuncture and, more, to focus on their long-term consequences for monetary union. To this end, the paper reviews the literature related to past proposals for establishing a fiscal union as well as proposals for sharing liabilities between euro area states. The implications for European bond pricing are also discussed. The fact that the issuance of common euro bonds could result in a regime shift suggests that the yield demanded by markets will be lower than the simple weighted average of yields before common issuance. The potential cost for the lowest risk countries will thus be commensurately smaller than often argued