National decision-making must improve the efficiency of the euro area

National decision-making must improve the efficiency of the euro area

 

The euro-zone needs to strengthen its institutions and make its national decision-making processes more efficient in order to strengthen the euro, European Central Bank Executive Board Member Lorenzo Bini Smaghi said Tuesday in a guest commentary to German daily Handelsblatt.
"To say it clearly I'm not in favor of a tax union or a transfer union. I'm only warning that the risk of transfers increases through inefficient decisions," Bini Smaghi wrote.
Bini Smaghi once more suggested that the euro-zone should issue debt through a "supranational" agency which would oversee issuance and make sure that agreed-to budget and debt plans are adhered to. Such an agency would serve as a true "debt brake," he said.
However, he ruled out the idea of using so-called "Eurobonds" as a way to pay for the debts of member states in the event that they reach their debt ceiling and are required to make use of the euro-zone bailout mechanism or consolidate fiscally.
"Every state must pay for its fiscal policy itself," Bini Smaghi said.
Given the need for a stronger decision-making process within the euro-zone, Bini Smaghi said that a "currency union is also a political union."

Italian, Spanish and German government bonds yields increased difference

Italian, Spanish and German government bonds yields increased difference

Italian and Spanish bonds continued to slide Tuesday, with the extra yield demanded by investors to buy them--instead of safe haven German bunds--rising to euro era highs as contagion fears gathered pace.
Yield on the benchmark 10-year Italian bond rose 22 basis points to 5.88%, pushing the yield spread over similar-dated German bunds to a new high of 330 basis points.
The move comes as Italy prepares to sell EUR5 billion of bonds on Thursday, with the country also scheduled to sell EUR6.75 billion of 12-month treasury bills later Tuesday.
While the treasury bill sale should not pose a challenge, investors will be keeping a close eye on the yields at the auction.
Spanish bonds were also sharply lower, with yield on the benchmark 10-year bond climbing 21 basis points to 6.22%, widening the spread over German bunds to a new euro era high of 361 basis points.

Global sovereign debt risk is too much trouble

Global sovereign debt risk is too much trouble Risks to sovereign debt in Europe and beyond pose the top problem for the global financial system, and banks, governments and central banks must prepare for a sustained period of volatility, top officials from the Canadian and Italian central banks said. "Sovereign risk has emerged as the main challenge to global financial stability," Bank of Canada Gov. Mark Carney and Bank of Italy Managing Director Fabio Panetta wrote in a commentary posted Monday on the Financial Times website. "This issue is not limited to Europe," they said. "With high and rising debt levels in most advanced economies, the risk-free status of sovereign debt is now in question." Carney is chairman of the Bank for International Settlement's Committee on the Global Financial System, and Panetta chaired a study group of the committee on sovereign-credit risk. They wrote that worsening sovereign creditworthiness hurts banks but that "actions by banks and the official sector can mitigate these effects." Banks should diversify their government-debt holdings, increase their capital and find stable funding sources, Carney and Panetta wrote. Governments, they said, must "step up efforts to return public finances to more solid long-term paths," and regulators must look at policies that encourage banks to hold large quantities of public debt, while ensuring maximum transparency of these holdings.