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Comments on Amtenbrink & De Haan

This paper discusses the legal and economic aspects of eurobonds, focusing on the failure of current governance, the need for increased budgetary discipline, and the avoidance of market speculation. It analyzes the enforceability of eurobonds under European and national (German) law and highlights the importance of enforceability in addressing the current financial crisis. The paper also examines the reasons for introducing eurobonds, the special nature of the Economic and Monetary Union (EMU), and the inherent instability in the EMU.

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Comments on Amtenbrink & De Haan

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  1. Comments on Amtenbrink & De Haan DNB workshop on Macroeconomic Imbalances in the Euro Area 13/14 October 2011Jeroen HesselSenior EconomistDe Nederlandsche Bank

  2. Outline paper eurobonds: legal & economic view • Failure of current governance: enforceability • Eurobonds to i) increase budgetary discipline and ii) avoid market speculation • Feasibility under current European and national (German) law

  3. Main comments: balance law & economics • Enforceability is very important, but not the only problem. That is a simplification. • If enforeability is the only problem, why far-reaching proposal to introduce eurobonds?

  4. Enforceability (i): starting positions • Rules were insufficiently enforced for several peripheral countries, but not for all of them

  5. Enforceability (ii): deficit increase

  6. Enforceability (iii): debt increase

  7. Enforceability (iv): conclusion • Enforceability should definitely increase • But financial crisis was a very big shock • Role of “forgotten” macro-imbalances • Rules cannot foresee all future problems • Budgetary problems never fully excluded

  8. Eurobonds (i): what reason? • If enforceability is key, why eurobonds? • Why should we prevent market speculation?  Asian crisis, Latin American debt crisis • Key reason: is a monetary union different?

  9. Eurobonds (ii): EMU seems special

  10. Eurobonds (iii): why is EMU special? • Political effectiveness? • Macro-imbalances and competitiveness • Larger risk of contagion • Deeper financial integration • Many countries in a similar position • De Grauwe (2011) inherent instability in EMU: • No exchange rate, monetary policy, lender of last resort

  11. Eurobonds (iv): conclusion • Main reason eurobonds: • Budgetary and macro-rules never prevent all future budgetary problems • EMU inherently unstable once this leads to doubt about debt-sustainability

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