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Debt Redemption Fund: Conditio Sine Qua Non? Government Bonds in the Euro Area Crisis

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  • Silke Tober

Abstract

Fiscal austerity has not led to a return of confidence and it is not at all certain that the current crisis strategy can be sustained politically and will eventually succeed. Government bonds of crisis-hit countries have lost their safe asset status and high risk premiums are impairing monetary transmission. Within its mandate the ECB is in principal able to do what it takes to put an end to this crisis, but only if euro area governments tow the same line. A well-designed debt redemption fund could restore confidence and enhance growth by repairing the monetary transmission mechanism and allowing the expansionary monetary policy of the ECB to reach the crisis-hit countries. Combined with additional policies to foster growth and rebalancing in the euro area, a temporary debt redemption fund could be instrumental in engineering an economic turn-around. The paper touches upon the recent OMT-decision of the German Federal Constitutional Court, euro(basket)bonds and eurobills.

Suggested Citation

  • Silke Tober, 2014. "Debt Redemption Fund: Conditio Sine Qua Non? Government Bonds in the Euro Area Crisis," IMK Working Paper 131-2014, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:wpaper:131-2014
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    File URL: http://www.boeckler.de/pdf/p_imk_wp_131_2014.pdf
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    References listed on IDEAS

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    1. Kirsten Lommatzsch & Silke Tober, 2003. "Reform der geldpolitischen Strategie der Europäischen Zentralbank," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 70(7), pages 110-117.
    2. Kirsten Lommatzsch & Silke Tober, 2006. "Euro-Area Inflation: does the Balassa–Samuelson effect matter?," International Economics and Economic Policy, Springer, vol. 3(2), pages 105-136, November.
    3. repec:pra:mprapa:42873 is not listed on IDEAS
    4. Gustav Horn & Camille Logeay & Silke Tober, 2007. "Methodological Issues of Medium-Term Macroeconomic Projections - The Case of Potential Output," IMK Studies 04-2007, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    5. Michael Reutter & Hans-Werner Sinn, 2000. "The Minimum Inflation Rate for Euroland," CESifo Working Paper Series 377, CESifo.
    6. Carmelo Pierpaolo Parello & Vincenzo Visco, 2012. "The European Redemption Fund: A Comparison of Two Proposals," Politica economica, Società editrice il Mulino, issue 3, pages 273-306.
    7. Jakob von Weizsäcker, 2010. "The Blue Bond Proposal," Bruegel Policy Brief 403, Bruegel.
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    Cited by:

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    2. Catherine Mathieu & Henri Sterdyniak, 2019. "On public debt in the euro area," SciencePo Working papers Main hal-03403548, HAL.
    3. Silke Tober, 2015. "Monetary Financing in the Euro Area: A Free Lunch?," IMK Working Paper 152-2015, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    4. repec:hal:spmain:info:hdl:2441/pm9j25k5p9bc8fsjhn1ov51ca is not listed on IDEAS

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    Keywords

    Debt Redemption Fund; OMT; safe assets; TARGET2; constitutional court; current account imbalances;
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