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Fixing the Euro Crisis

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About this Event

14 Oct 2011 @ 12:45

You can listen and download the keynote speech in .mp3 format here.

About the Event:

At this meeting of the IIEA Economists Group, Professor Philip Lane presented some of the proposals of the newly established Euro-nomics Group, of which he is a member. The group's objectives are to systematically identify the weaknesses in the design of the Eurozone that have caused the current crisis and to propose remedies to end it.

Among their ideas is a new form of European Safe Bond or 'ESBIE'. The ESBIE is designed to break the 'diabolic loop' that exists beween sovereign debt and the banking system, while simultaneously providing a new safe asset that could act as an anchor in the turbulent European bond market. 

The ESBIE would bypass two of the major obstacles faced by proposals for a 'Eurobond', namely the requirement for Treaty change and the requirement of a joint and several guarantee by participating states, with consequent moral hazard.

Under the ESBIE proposal, states would retain full responsibility for their sovereign debt, but debt up to the value of 60% of GDP would be purchased by a European Debt Agency, which would fund its purchases through the issuance of ESBIEs, alongside a riskier junior tranche. The entrance of such a major buyer into the European sovereign debt market would reduce uncertainty and allow for the redistribution of a liquidity premium towards peripheral countries. 

Find out more about ESBIEs and the group's other proposals here.

About the Speaker:

Philip R. Lane is Professor of International Macroeconomics at Trinity College Dublin. In addition, he is a managing editor of the journal Economic Policy and the founder of The Irish Economy blog. He is a research fellow of the Centre for Economic Policy Research (CEPR) and a member of the steering group for its Macroeconomics of Global Interdependence (MGI) working group. His research interests include financial globalisation, the macroeconomics of exchange rates and capital flows, macroeconomic policy design, European Monetary Union, and the Irish economy.
 

This content forms part of the E View project, which is part-funded by DG Communication of the European Parliament. 

 


 

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