The Search for a Euro Area Safe Asset

The Search for a Euro Area Safe Asset. Peterson Institute for International Economics. Álvaro Leandro and Jeromin Zettelmeyer.  Working Paper 18-3. March 2018

 This paper evaluates four approaches to creating “safe assets” or asset portfolios for the euro area: (1) a diversified portfolio of senior tranches of sovereign debt (“national tranching”); (2) a senior security backed by a diversified pool of national sovereign debt (“ESBies”); (3) debt issued by a senior financial intermediary, backed by a diversified pool of national debt (“E-bonds”); and (4) debt issued by a euro area budget or a leveraged wealth fund, based on member state contributions or dedicated direct revenue sources. None of these approaches envisages explicit guarantees by member states, and all could potentially produce safe assets in sufficient quantities to replace euro area sovereign bond holdings in euro area banks. At the same time, the four approaches differ across several important dimensions. A euro area budget or wealth fund could create the largest volume of safe assets, followed by ESBies, E-bonds, and national tranching. A euro area budget or wealth fund is also likely to have the lowest impact on the structure and liquidity of national bond markets, while national tranching would have the largest impact. ESBies and E-bonds occupy an intermediate position. ESBies and potentially bonds issued by a euro area budget would offer their holders greater protection from deep national defaults than the other two proposals. Both ESBies and national tranching would avoid cross-country redistribution by construction, whereas E-bonds and a euro area budget could have significant distributional consequences, depending on their design. E-bonds are unique in that they would raise the marginal cost of sovereign debt issuance at higher levels of debt, thereby exerting fiscal discipline, without necessarily raising average debt costs for lower-rated borrowers. [Note: contains copyrighted material].

 [PDF format, 68 pages].

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Earmarked Revenues: How the European Union Can Learn from US Budgeting Experience

Earmarked Revenues: How the European Union Can Learn from US Budgeting Experience. Peterson Institute for International Economics. Policy Brief, 18-2. Jacob Funk Kirkegaard. January 2018

 New challenges facing the European Union—immigration pressures, the need to decrease security dependence on an increasingly erratic United States, and the United Kingdom’s exit from the European Union (Brexit)—are compelling EU leaders to consider overhauling the revenue side of the European Union’s existing budget. To deal with these challenges in the future, the European Union will need resources—at a time when Europeans are increasingly skeptical about the effectiveness of budget-making in Brussels. Longstanding US budgetary procedures of trust fund accounting and earmarking government revenue towards specific priorities can provide a template for European policymakers. Shifting the EU budget towards more earmarked resources would reduce distrust among taxpayers by limiting Brussels’ spending discretion while focusing expenditures on specific challenges facing the European project. [Note: contains copyrighted material].

 [PDF format, 15 pages].

A Primer on Disaster and Emergency Appropriations

A Primer on Disaster and Emergency Appropriations. The Heritage Foundation. Justin Bogie. March 2, 2016.

Each year, Congress appropriates billions of dollars in discretionary funding for disaster relief and emergencies. Some of that funding is provided through base appropriations measures, but a much larger portion is provided through annual Budget Control Act (BCA) cap adjustments that increase discretionary spending by billions of dollars, or by supplemental appropriations bills that provide even greater amounts of funding that is not subject to spending caps or budgetary controls. The paper outlines the three classifications of disaster and emergency spending and discusses the importance of paying for these events within the normal annual appropriations except in the cases of true emergencies. [Note: contains copyrighted material].

[PDF format, 3 pages, 121.36 KB].

Defense Modernization Plans through the 2020s

Defense Modernization Plans through the 2020s. Center for Strategic & International Studies. Todd Harrison. January 26, 2016.

Since the enactment of the Budget Control Act (BCA) of 2011, much attention has been paid to the near-term effects of budgetary constraints on national defense. What has received less attention are the looming budgetary challenges defense faces beyond the BCA budget caps and the Defense Department’s five-year budget planning horizon. The report details the plans for major acquisition programs over the next fifteen years and explores the complicating factors that may make the situation more problematic for policymakers. [Note: contains copyrighted material].

[PDF format, 42 pages, 2.12 MB].

Budget Deficit Slips as Public Priority

Budget Deficit Slips as Public Priority. Pew Research Center. January 22, 2016.

As Barack Obama begins his final year in office, the goal of reducing the budget deficit, which the public once ranked among the most pressing objectives for his administration, has continued its recent decline in perceived importance. [Note: contains copyrighted material].

[PDF format, 31 pages, 521.11 KB].

Kids’ Share 2014: Report on Federal Expenditures on Children Through 2013

Kids’ Share 2014: Report on Federal Expenditures on Children Through 2013. Urban Institute. Heather Hahn et al. September 18, 2014.

Kids’ Share 2014: Report on Federal Expenditures on Children Through 2013, an eighth annual report, looks comprehensively at federal spending and tax expenditures on children. Total federal expenditures on children were up from 2012, but below spending in 2010. Broader budgetary forces will continue to restrict spending on children over the next ten years, despite an overall projected growth of over $1.4 trillion in federal spending. Over the next decade, outlays on children are projected to decline from 10 to 8 percent of the federal budget. [Note: contains copyrighted material].

[PDF format, 60 pages, 1.87 KB].

The Debt Limit Since 2011

The Debt Limit Since 2011. Congressional Research Service, Library of Congress. D. Andrew Austin. February 18, 2014.

Total federal debt can increase in two ways. First, through debt increases when the government sells debt to the public to finance budget deficits and acquire the financial resources needed to meet its obligations. This increases debt held by the public. Second, through debt increases when the federal government issues debt to certain government accounts, such as the Social Security, Medicare, and Transportation trust funds, in exchange for their reported surpluses. This increases debt held by government accounts. The sum of debt held by the public and debt held by government accounts is the total federal debt. Surpluses reduce debt held by the public, while deficits raise it.

[PDF format, 23 pages, 417.67 KB].