Lane: eurozone bond plan will take time
Eurozone authorities are scrutinising proposals for a synthetic common bond aimed at strengthening banks’ immunity to financial shocks – but the process will take time given the asset’s complexity, Central Bank Governor Philip Lane has said.
In May, the European Commission proposed setting up a new class of Sovereign Bond-Backed Securities (SBBS) to help break the link between member state banks and governments.
The SBBS would combine bonds from the 19 countries that use the euro into a single asset, allowing lenders to diversify their holdings away from their own government’s debt and in theory increasing the financial stability of the eurozone.
Professor Lane who is tipped by some to replace Peter Praet as ECB chief economist next year, chairs the task force that put forward ideas for a joint “safe asset” backed by eurozone sovereign bonds.
He did not specify a time frame for the plan, which he said was subject to regular eurozone legislative procedures.
“Given the depth and complexity of the issues … it is understandable that the material is still being assessed and reviewed,” he said.
“It will take time for the legislative discussions to evolve: it is important that decision-makers develop a good understanding of the properties of the proposed SBBS asset class.”
The SBBS may struggle to gain traction in some countries, notably Germany, where the idea of joint borrowing by eurozone states is unpopular.
“The proposals from the task force are aimed at ensuring a more resilient financial system,” said Professor Lane.