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Chasing unicorns: The European single safe asset project

Gabor, Daniela; Vestergaard, Jakob

Chasing unicorns: The European single safe asset project Thumbnail


Authors

Jakob Vestergaard



Abstract

© 2018, © The Author(s) 2018. For the past 20 years, Economic and Monetary Union (EMU) institutions have sought to engineer a single safe asset that would provide a credible store of value for capital market participants. Before 2008, the European Central Bank used shadow banking to create a single safe asset that we term shadow money, and in doing so also erased borders between Euro area government bond markets. Lacking appropriate ECB support, shadow euros could not withstand the pressures of the global financial crisis and brought down several periphery euro government bonds with them. Two new plans, the Capital Markets Union and the Sovereign Bond-Backed Securities, again turn to shadow banking, this time by using securitization to generate an entirely private safe asset or a public–private safe asset. Such plans cannot solve the enduring predicament of EMU’s bond markets architecture: that Member States have competed for investors (liquidity) since the introduction of the euro, betraying a deep hostility towards collective political solutions to the single safe asset problem. Technocratic-led, market-based initiatives need to persuade EMU states that there is little threat to their ability to issue debt in liquid markets. Without ECB interventions, market-based engineering of single safe assets runs the danger of repeatedly destabilizing national bond markets.

Journal Article Type Article
Acceptance Date Feb 1, 2018
Online Publication Date Mar 1, 2018
Publication Date Apr 1, 2018
Deposit Date Apr 16, 2018
Publicly Available Date May 1, 2018
Journal Competition and Change
Print ISSN 1024-5294
Electronic ISSN 1477-2221
Publisher SAGE Publications
Peer Reviewed Peer Reviewed
Volume 22
Issue 2
Pages 139-164
DOI https://doi.org/10.1177/1024529418759638
Keywords safe assets, shadow money, EMU architecture, ECB, central banks
Public URL https://uwe-repository.worktribe.com/output/870884
Publisher URL https://doi.org/10.1177/1024529418759638
Related Public URLs http://journals.sagepub.com/doi/full/10.1177/1024529418759638
Contract Date May 1, 2018

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