Such a development would further undermine individual national responsibility in the euro area – with all the problems I have already discussed. It would therefore have to be ensured that sovereign bond-backed securities are issued only by private financial market players – and certainly not by a European debt agency that potentially possesses a government guarantee. One simple fact cannot be avoided either.
Risks don’t disappear just by packaging them; they simply become concentrated in junior tranches – we learned that much from the subprime crisis. That is why the banks have to back all tranches of securitisation in a risk-appropriate manner with capital in future. There should be no preferential treatment of sovereign bond-backed securities compared with sovereign or private bonds.