Handelsblatt Exclusive

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The Secret Debt Plan

  • Why it matters

    Why it matters

    The European Commission and European Central Bank hope to make the euro zone more crisis-proof by introducing a new type of bond, but critics fear their plans could have the opposite effect.

  • Facts

    Facts

    • The European Commission has drawn up plans to create European Safe Bonds that are meant to stop financial contagion spreading across the euro zone.
    • The plans were presented to over 100 managers of hedge funds, pension funds and major banks at a meeting at the Banque de France on December 9.
    • A working group plans to publish a report on the new bonds by March 23.
  • Audio

    Audio

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BELGIUM-EU-ECB-DRAGHI
Jean-Claude Juncke has the support of Mario Draghi to set up European Safe Bonds, a type of euro bond. Source: Getty

The European Commission is drafting a proposal to bundle some debt of the euro-zone states into a new financing instrument called “European Safe Bonds,” according to information obtained by Handelsblatt.

The goal of the bonds would be to reduce the risk of member states going bankrupt or contagion spreading through banks. The commission aims to publish a white paper on the subject in March.

But opposition is already building in Germany. The finance ministry’s advisory council warned Finance Minister Wolfgang Schäuble in a letter that the proposal amounts to implementing “eurobonds through the backdoor.”

Potential investors – financial giants like BlackRock, Morgan Stanley and Goldman Sachs – are also skeptical.

The German government has already signaled to Brussels that it opposes the proposal, according to E.U. diplomats.

But the European Commission apparently has the support of the central bankers who will publish a report two days before the commission’s white paper.

According to Handelsblatt information, the experts support the idea of safe bonds, much to the frustration of some E.U. member states, who believe the central bank has no business helping the commission create new instruments for state financing.

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