Eurobonds, Flight to Quality, and TARGET2 Imbalances (2012:4epa)


Despite the fierce opposition against introducing so-called Eurobonds, the proposal as such has resurfaced in light of demands from G20 and the International Monetary Fund (IMF) that the euro area member states further increase the lending volume of their rescue funds. Given the lack of political response, the European Central Bank (ECB) has come to the rescue by buying government bonds and stimulated the financial markets with low-interest loans in order to reduce the systemic risk. In his analysis Professor Erik Jones discusses reforms that can prevent the euro area to end up in a similar situation again. Among other things, European leaders should establish economic governance that focuses on the borrowing and not on the borrower, offset the geographic aspect of flight to quality and break the interdependence between national banks and national governments.

The publication is part of the research project The EU and the EMU after the economic crisis and is written in English.


Erik Jones is Professor of European Studies at Johns Hopkins SAIS, Director of Bologna Institute for Policy Research and Senior Research Fellow at Nuffield College, Oxford.