Reports on fiscal union See all

Andrea Enria, chairman of the European Central Bank’s supervisory board

The dangers of preferential treatment for sovereign debt

Under current rules, eurozone countries’ bonds are classified as “zero-risk,” meaning banks are not required to hold any capital against such assets. The system creates a perverse incentive for banks to stock up on sovereign debt, creating a toxic mix – but what can be done? Putting risk assessments on government bonds could destabilize some countries’ economies. Not doing so risks another financial crisis.

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