Among the efforts of the European Union (EU) to support its member states in the face of the economic shock of the pandemic, which materialized in July in a package of 750,000 million euros between transfers and loans, the issuance of EU bonds stands out. what will make the community bloc a very important player in this market five years ahead. The objective is to put 900,000 million euros in common debt into circulation between now and 2026, assets that will receive the highest credit rating and that will end up being a 'safe haven' on par with the US or Japan.
The creation of a joint debt market will allow European economies with a weak credit profile back your debt with the European guarantee, critically reducing your financing costs. The initiative makes 'the Twenty-seven' a lender of last resort to its member states, setting a significant precedent for the European debt market. "Under this scheme, Europe becomes a safe investment place or safe haven assets, similar to bonds backed by the US Treasury or the Japanese government ", explain the experts at Monex Europe.
"Considering that the community debt market would be relatively small compared to those large issuers, the European bonds could enjoy competitive demand resulting from the recomposition of international investment portfolios ", these experts add. The attractiveness of this instrument" could favor the appreciation of the euro in a context of low relative returns on foreign assets with a similar level of risk ", they add.
However, given that a large part of the capital flows captured by the nascent market could originate within the Eurozone itself (from the ECB, Germany and / or European private investors), "the upward impact on the euro could be limited", they comment. In any case, "the supranational initiative offers a very positive signal to other European debt niches in the face of international markets, by raising the institutional strength of the economic bloc to an unprecedented level, "argue these economists.
At the moment, "the performance of the first emissions has shown that investors recognize the potential of EU debt"underlines Julian Le Beron, analyst at Allianz Global Investors, who also believes that community debt" could play an important role as a safe haven. "However," this role will increase along with the size of the issue. It is a process that takes time, "he points out.
In this sense, the expert believes that in the medium term this debt could become a government bond competitor, especially from the German Bund as it will "reduce the scarcity premium implicit in German bonds". Instead, the effect caused is the compression of interest on public debt to historical minimum levels"They point out from Monex Europe. This" not only paves the way for economic recovery, but also mitigates the disparity of the crisis between sectors and member states. "Thus, large economies such as Italy and Spain, which were severely affected by the pandemic and who had a fragile credit profile, take advantage of unbeatable financing conditions for their recovery.
In the long term, Le Beron foresees that these emissions could end up being a full-fledged 'eurobond'But it will be when the EU can develop its own fiscal policy, with its own budget and a policy of redistribution within the euro area. That is, "when the monetary union deepens, sharing resources for strategic sectors such as technology, research, health care, immigration and defense," he adds. "The 'Eurobond' of the EU will be the final element to eliminate the fragmentation of the euro zone", assures the manager of AllianzGlobal Investors.
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