In a recent press statement, ifo’s President Clemens Fuest argues for second-tier “accountability” bonds that would allow debt above the current limits of the Maastricht criteria, but with strings attached. From the statement:
Fuest and Becker propose that states only be allowed to finance 0.5 percent of their annual economic output with normal bonds. Should they run higher deficits, the excess debt should be subordinate i.e. it will only be repaid after other debts, must not be bought by the ECB, and should also only be held by banks with higher equity cover.
He continues to argue that such bonds would have far higher interest rates than regular bonds, thus discouraging states from using them to much. Continue reading On ifo’s accountability bonds