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There is a deep need for a European safe asset for many reasons: CMU, a solution of the banks-sovereigns nexus, normalisation of long term rates or financial stability goals. The proposal in today‘s @MESandbu column is not viable. 1/n
No one in CB ever contemplated issuing 5y and 10y fixed term deposits ( let alone bonds!) in terms of building and maintaining a viable yield curve. That would compete directly with Treasuries, could create conflicts with overall primary liquidity supply etc 2/n
The level of bank reserves in major CB is the result of purchases of securities that injected big amounts of liquidity in the market. The argument by academics in JH Symposium 2016 kansascityfed.org/~/media/files/… for bigger CB balance sheets for financial stability goals is different 3/n
Their proposal for CB balance sheets bigger than before the crisis refers to CBs purchasing short duration Treasuries to offer the safe-asset bank‘s reserves, so that there would be lower temptation by the market to create short term pseudo-safe-assets as before the crisis 4/n
To achieve the mentioned goals, the only proposals for a European safe-asset deserving a realistic debate (not full eurobonds) turn around two ideas: the SBBS esrb.europa.eu/pub/task_force… or the so-called Ebonds based on plain securitisation with seniority cepr.org/sites/default/… 5/5
