ECB's Patsalides Argues for Joint European Debt to Strengthen Financial Stability
Calls for Joint Debt Issuance to Enhance Europe's Economic Resilience
Political Resistance and the Debate Over Joint Borrowing
FRANKFURT, June 7 (Reuters) - It is time for Europe to give up its long-standing political resistance to joint debt issuance, as a large-scale safe asset would bolster the bloc's sovereignty and stability, Cypriot central bank chief Christodoulos Patsalides said on Sunday.
Europe has long debated joint borrowing to create a benchmark instrument that could rival U.S. Treasuries, but some nations, particularly Germany and the Netherlands, have opposed it, fearing that their taxpayers would end up having to pay for the fiscal irresponsibility of others.
Impact of the Lack of a Common European Safe Asset
The lack of such an asset has kept the bloc's financial architecture incomplete, resulting in higher borrowing costs and lower competitiveness, prompting the European Central Bank to make an increasingly forceful push for a political shift.
Patsalides' Arguments in Favor of Joint Debt
Economic, Geopolitical, and Institutional Conditions
"A rare alignment of economic, geopolitical, and institutional conditions has created a compelling case for the issuance of a common European safe asset," Patsalides, whose nation holds the EU's rotating presidency, said in an opinion piece.
Potential Uses and Benefits of a Common European Safe Asset
Funding Common Initiatives
Patsalides, who is also a member of the ECB's Governing Council, argued that such an instrument could lower the costs and provide the scale needed to fund common initiatives, such as the green and digital transitions, AI programmes, defence, health preparedness, or energy security.
Virtuous Circle of Financial Stability
In fact, issuing joint debt would create a virtuous circle with far-reaching benefits.
Role in Capital Markets and Investment
A large-scale safe asset would provide a pricing benchmark, a collateral foundation and liquidity pool, all necessary conditions for a well-functioning capital market. This would then help mobilize Europe's large household savings towards productive investments.
"A deeper and more liquid European capital market, anchored by a common benchmark asset, would facilitate larger institutional pools of capital, support long-duration investment, and lower financing costs across borders," he said.
Strengthening the Euro and European Autonomy
This would also strengthen the global role of the euro and the bloc's autonomy, since reserve currencies require scale and deep pools of liquid, safe assets, he argued.
Implementation: Separating Issuance and Spending
The best approach to make this functional would be to separate issuance and spending, with the first creating the safe asset market and the latter deploying capital towards common objectives, Patsalides said.
(Reporting by Balazs Koranyi; Editing by Toby Chopra and Tomasz Janowski)
