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The Euro Crisis and Its Aftermath$
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Jean Pisani-Ferry

Print publication date: 2014

Print ISBN-13: 9780199993338

Published to Oxford Scholarship Online: May 2014

DOI: 10.1093/acprof:oso/9780199993338.001.0001

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A European Safe Asset

A European Safe Asset

Chapter:
(p.160) Chapter 19 A European Safe Asset
Source:
The Euro Crisis and Its Aftermath
Author(s):

Jean Pisani-Ferry

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199993338.003.0019

Although the euro quickly acquired the status of number two international currency after its creation, it failed to challenge the dominance of the dollar. Nevertheless, the global rationale for a common European currency is stronger than ever. Unfortunately, foreign investors have difficulty understanding Europe and paid the price for mistakenly believing that all euro-area government bonds could be considered safe assets. Currently, the safe euro asset is considered to be the German 10-year bond.. However, the question is whether there can be a monetary union in which only one country is providing the safe asset of reference, since the country in question benefits from a significant rent in the form of lower yields. The relevance for the euro area is that if Germany’s partners realize that Germany gets a rent, they will request that it takes on special responsibilities for the stability of the system. Both refusing to behave as the insurer of the system, and accepting to act as the sole insurer of the system, do not appear to be lasting solutions. However, Eurobonds could give Germany the means to share the rent with its partners. The quid pro quo would be for them to accept a new budgetary regime, based on much stronger ex-ante controls. A new contract of this sort would be indispensable because a country accepting to guarantee the debt of another state would, in a way, be giving this other state access to its own taxpayers. Projects of this type may seem far-fetched and require political conditions that are not yet met, but this was also the case when the euro was first launched.

Keywords:   euro, Europe, dollar, monetary union, Germany, rent, Eurobonds

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