That went well beyond constructive pressure to improve efficiency to destructive agony. We’ve been only too well aware of that - we could hardly not have been; and we’ve not been insensitive to it either. We have consistently taken account of the unexpectedly persistent strength of the exchange rate in both our forecasts and in our monetary policy judgements. But when you come right down to it, for as long as economic conditions between one country and another diverge, whether for cyclical or structural reasons, there is a choice. Countries can either aim to stabilise their respective domestic economies, accepting that that may mean exchange rate volatility, or they can aim to maintain exchange rate stability, accepting that that may destabilise their respective domestic economies. These are the horns of the uncomfortable dilemma we have been on. I have no doubt, in terms of the macro-economy as a whole, that we have been right to persist in aiming to stabilise our domestic economy - the facts speak for themselves. It is possible - even perhaps likely - that our dilemma may now become less acute, at least for a time as the euro strengthens to a more sustainable level. Our best chance of maintaining that happier position - if indeed it occurs - is to persist in domestic stabilisation and structural reform alongside our European partners, but it is difficult to be confident at this stage that the dilemma will not re-emerge. BIS Review 50/2000  2
Their main concern is a perceived lack of diversification to ensure that the senior tranche can be indeed as safe as claimed because correlations among several countries’ debt could increase in a stressful situation (as occurred during the financial crisis). Also, it may be difficult to sell the junior tranche at coupons that do not fatally compromise the overall economics of the synthetic security issuance. Indeed, if the junior tranche had to be placed at a relatively high coupon, then the senior tranche would need to offer a lower coupon than Bunds, a doubtful selling prospect. This would likely render the economics of the SBBS as unviable, which would be very unfortunate. These obstacles could be overcome if, for instance, a small first loss tranche were to be covered by public guarantee, jointly provided by member states. Such contingent liability could be limited to a reasonable level. The success of the synthetic European Bonds would have significant benefits for financial integration and for the banking and capital markets unions. Alternatively, a European entity could issue e-bonds as a pure securitisation of sizable amounts of national sovereign bonds but with a preferred creditor status over national sovereign bonds. Such a structure would be less efficient and could increase the cost of issuing the nonpreferential part of national debt that is not included in the securitisation. However, this could even act as a disciplining device and would not necessarily imply an increase in the costs of the total debt issuance. The amounts achieved could nevertheless be considerable.