Soaring debt levels and the crisis in Greece has sharpened the focus on fiscal sustainability among eurozone members.
The European Union has to tackle high debt levels in vulnerable states which are compounded by a hike in risk premiums on government bonds leading to a debt trap, while designing ways to efficiently finance debt.
Furthermore, European solidarity with weaker states should not undermine incentives for individual members to pursue fiscally sustainable policies.
This Policy Brief proposes a Blue Bond to resolve these challenges.
The authors, Bruegel Non-resident Fellow Jakob von Weizsäcker and Jacques Delpla from Conseil d'Analyse Économique, Paris, explain the economics behind their proposal, its institutional underpinnings and the implication of it on various participating countries.