ECB Call to Discuss Safe Assets Signals Renewed Push for Action

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The European Central Bank renewed its appeal for a so-called European safe asset that would help shield the region’s financial markets from future crises, a move that Germany has railed against amid concerns that it would create new risks.

Vice President Luis de Guindos used a conference with the European Commission in Brussels on Thursday to urge the exploration of a low-risk financial instrument that investors could hold instead of national sovereign bonds. His Executive Board colleague Benoit Coeure said a day earlier that a safe asset would aid monetary policy, strengthen the international role of the euro and contribute to completing economic and monetary union.

“We should not shy away from having an open discussion on the need for a European safe asset. If well designed, such a European asset could become the benchmark for investors in EU capital markets, reduce the incentives for capital flight on national bonds within the euro area and contribute to lowering risks on banks’ balance sheets.”
-- Luis de Guindos

The euro area’s past decade was marked by bouts of cross-border financial stress that threatened to splinter the monetary union, prompting calls for a euro-denominated asset that isn’t bound to a single government’s public finances.

Still, the idea has been resisted by countries such as Germany that fear they’ll end up paying for others’ bad debts through the back door. A European Commission proposal to develop sovereign bond-backed securities has failed to gain much traction.

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The ECB’s board will gain an influential proponent of safe assets next month. Philip Lane, who will replace chief economist Peter Praet, designed atemplate last year for how such a security could be created.

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