EU Commission to Push for EU Bonds in Sovereign Indexes

The European Commission plans to press index providers and the financial industry to treat bonds issued by the European Union as sovereign debt, a step it says would lift demand for the securities and reinforce the euro's role in global finance.

Speaking at an economic seminar in Dublin ahead of a meeting of EU finance ministers and central bankers, the bloc's economic commissioner, Valdis Dombrovskis, said EU bonds have so far not been viewed as sovereign by markets and are consequently left out of sovereign bond indexes. That omission, he argued, weighs on demand for the debt and limits its usefulness as a liquid, safe asset for investors. "It is time to revisit this issue," he said.

According to Dombrovskis, roughly €800 billion ($918.64 billion) of EU bonds are now outstanding, making the bloc's bond market the second-largest source of triple-A-rated debt in Europe and the third-largest worldwide. The figures remain modest next to the $32 trillion US Treasuries market, while Germany, Europe's largest triple-A issuer, has about €2.5 trillion outstanding.

Issuance is expected to grow in the coming years, including under the EU's next long-term budget, which Dombrovskis said would deepen the market's liquidity. He added that secondary-market trading in EU bonds now resembles that of large sovereign issuers within the bloc, and noted the debt can be used as collateral on par with sovereign bonds at clearing houses and in European Central Bank refinancing operations.

Dombrovskis pointed to attributes he said give the EU many sovereign-like characteristics: a budget, access to its own resources, powers to legislate and enforce laws, and a common currency for the euro area backed by an independent central bank.

The outreach to index providers, he said, is one of several concrete measures the Commission sees as a way to strengthen the euro's position in global transactions and as a reserve currency.