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F. Heinemann: Accountability Bonds – A Reform Proposal for the Euro Area

14 November 2017 at 12:30

**By invitation only**

Featuring Friedrich Heinemann, head of the department of Corporate Taxation and Public Finance at the Centre for European Economic Research (ZEW) in Mannheim as well as adjunct professor of economics at the University of Heidelberg.

Abstract: The stabilization policies of the EU and the European Central Bank (ECB), as well as prevailing lax capital requirements for banks holding bonds issued by euro countries, have led to an implicit guarantee that the debt of individual states is backed by the eurozone collective. The restructuring of eurozone bonds held by private investors is practically impossible under status quo arrangements, as the developments in Greece have demonstrated. We thus propose a new junior debt instrument for sovereigns, which we call "accountability bond". It ensures market attention for credit risk at the margin. At the same time, it strengthens European deficit rules, as the requirement to issue accountability bonds would be tied to these rules. There is no danger that the introduction of accountability bonds would destabilize financial markets, for they would only be introduced in a distinct market segment.

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