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White smoke, at last. Now the EU has a budget – and the beginning of a safe asset. https://www.ft.com/content/03d72613-1745-4520-9ba3-5a94c8a3963f
I am still amazed how, after all the debate over selling even tiny amounts of joint EU debt, we suddenly are on course to strengthen the euro almost overnight with a large and liquid bond issuer who will be active across the curve. https://www.bruegel.org/2020/12/thinking-big-debt-management-considerations-for-the-eus-pandemic-borrowing-plan/
The original #NextGenerationEU proposal focused on longer-term debt, to match budget horizons but also stay out of the way of national issuers on the short end of the curve. Now bills may also be on the table, as the EU manages not only pandemic but also SURE and EFSM rollovers
This is great for the euro, as having this kind of available collateral could revitalize short-term funding markets in many sectors. Right now demand is sky high, but down the road there might be a glut, it's something to watch out for as the economy recovers.
My colleague @nicolas_veron has argued that national issuers might end up "junior" to the EU. I don't think this is right – worse-rated is not the same as subordinated to. The joint EU debt will not be senior to national obligations in the way that an IMF loan would be.
Here is link to @nicolas_veron argument. I think the general question of competition is a good one, esp. because the EU for now will have to borrow back to back and may run into some awkward timing. But again, that's not juniorization, that's just risk. http://www.international-economy.com/TIE_Su20_EUHamiltonSymp.pdf
I broke the thread, here's the rest. Capital markets involve risk, yes, but that isn't necessarily predatory and speculative. The EU will need to sit with that when it decides where to go next. https://twitter.com/rebeccawire/status/1337337955099271168?s=20
