Carl‐Erik Torgersen LL.M. Program April, 2012 International Finance: Seminar Professor Hal Scott EUROBONDS LL.M. short paper

Table of Contents

I. Introduction ........................................................................................................................ 3

II. Background ......................................................................................................................... 4 A. History of Eurobonds .......................................................................................................... 4 B. Eurobonds and the current European sovereign debt crisis .............................................. 6 C. Legal issues ......................................................................................................................... 7 III. Summary of different Eurobond proposals .................................................................... 9

A. Gros/Micossi ................................................................................................................... 9 . B. De Grauwe/Mösen ........................................................................................................ 10 C. Hild/Herz/Bauer ............................................................................................................ 12 D. Muellbauer .................................................................................................................... 14 E. Delpla/von Weizsäcker .................................................................................................. 16 IV. An alternative Eurobond proposal ................................................................................ 19

V. Conclusion ......................................................................................................................... 23 VI. References ..................................................................................................................... 24

I.

Introduction

This paper discusses the major Eurobond proposals put forth by politicians, scholars and bankers. The paper analyzes the benefits and weaknesses of the various proposals, critically assesses the concept of Eurobonds, and finally proposes a different Eurobond system. The paper is structured in the following way: Following this brief introduction, the second section presents a brief background on Eurobonds, explaining their history and their implications for the current sovereign debt crisis. It then discusses the legal issues and myths about Eurobonds. The third section reviews different Eurobond proposals. Proceeding in chronological order, the section starts with the first proposal, made by Daniel Gros and Stefano Micossi in spring 2009. It then analyzes the proposal made by Paul De Grauwe and Wim Moesen later the same year. Next, it considers the 2011 proposal by the German legal scholars Alexandra Hild, Bernhard Herz and Christian Bauer, which uses modern financing instruments. It then turns to John Muellbauer’s conditional Eurobond proposal in October 2011. The section concludes by discussing the most elaborate proposal, made by the two economists Jacques Delpla and Jacob von Weizsäcker. The last section presents a new Eurobond proposal, which tries to solve the major drawbacks of the various existing proposals.

II.

Background

A. History of Eurobonds Eurobonds are debt instruments or loans jointly and severally guaranteed by the 27 EU member states or by the 17 member states of the European Monetary Union. The guarantee means that if an issuing country cannot service its Eurobonds, the creditors can demand payment from all other member states. The concept of such bonds is not new. The first real Eurobond proposal was made