Shared scepticism, different motives: Franco-German perceptions of a common European safe asset

Summary:

Safe assets as an element of the Euro area reform agenda have seen a resurgence of interest in the last few years, notably through the work of the European Systemic Risk Board’s (ESRB) High-Level Task Force on Safe Assets, which presented its findings in early 2018. Nevertheless, a common European safe asset is one of the more contested elements of this agenda: while many economists consider that it could deliver substantial macroeconomic benefits, others are just as convinced that ‘safe’ asset proposals are unneeded at best and a threat to the financial stability of the Euro area at worst. This is particularly true of the Sovereign Bond - Backed Securities (SBBS) proposal endorsed by the ESRB’s High-Level Task Force, which has proven to be highly controversial among national policymakers, especially in France and Germany, the Euro area’s largest economies and so-called historical ‘motor’.

This policy paper explains the concept and policy rationale of a common European safe asset and explores how the various proposals – from Eurobonds to SBBS – have evolved with the debate over time, emphasising the critical issues and points of contention. It then shows how the safe asset debate is viewed differently in France and Germany based on research interviews conducted with 21 high-level policymakers and academic experts representing the key economic, fiscal, and monetary institutions in both countries. It presents a framework for understanding Franco-German economic policy disagreements, identifies the principle areas of disagreement, and describes how these two approaches work together in practice.

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