Panellists agreed that integration of the Euro-area Government bond market will be a positive step for the Euro-zone. However difficult decisions need to be taken. A Commission official said that common issuance and “EU debt agency” could be a possible salvation for future crises.
Sean Berrigan, Director for Macrofinancial Stability - DG ECFIN, presented where the Euro zone stands in terms of government market integration. He highlighted the following points:
· Apparent integration of the market in terms of price and quantity.
· Degree of price convergence exaggerated by global yield
· Investors and issuers assumed that convergence was the “new normality” in the EMU
· However the situation has changes because euro area yields converged before the crisis but after crisis convergence does not exists anymore.
Mr Berrigan said that on the one hand pessimistics see a missed opportunity for the market as during the last 10 years the integration has not been launched. On the other hand, optimistics see that a common issuance by and “EU debt agency” will be the possible salvation for future crisis. He defined himself as realistic by saying that the time is never the right and that costs are excessive in bad times but still the bond market integrations is a good project with some difficult decisions to take ahead.
Paul De Grauwe, CEPS Senior Associate Fellow and Professor at University of Leuven, compared the US government bond market and the Euro zone one. He said that the debt levels were and are higher in the US, however, the government bond market crisis is taking place in the Euro zone and not in the US. The reasons for that is that the Euro zone does not have mechanisms in place that automatically and smoothly acts when there is a problem in the market. Moreover the absence of the “solidarity mechanism has open the door to stabilizing speculation in the government bond market.
He made an analogy between California and Greece and said that markets believes that if needed the Fed government will bail out California while the Europe markets , even if the Euro zone has the ability to bail out Greece and has do so in a way, financial markets do not trust the Euro zone.
Daniel Gros, CEPS Director, clarify that the California debt is not held by banks, that the amount of US debts is not so much traded as in the EU and that most of the US debt is held by China. Mark Austen from AFME said that it is possible that in the future US faces a similar crisis to the EU is currently experiencing.
© CEPS - Centre for European Policy Studies
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