We introduce an analytical tool to study the effects of a limited joint liability component for several variants of Eurobonds. Our approach allows to optimize the degree of jointness and therefore could overcome the huge and emotionally influenced political obstacle of joint liability. Interest savings reach 0.5 percentage points depending on the degree of joint liability even in the current economic environment. A constant degree of 10% of joint liability of each country's individual share is close to optimum for a very broad range of scenarios. We can thus price the political cost of joint liability. The approach is stable over time and robust in different scenarios. In the sensitivity analysis, we examine different scenarios as, e.g. a PIIGS bond and an EU6 bond, which are all beneficial for each individual country as well as the community. Due to risk diversification, countries with a high-interest load contribute most to the profitability of the structure while AAA countries provide credibility and market acceptance. Summarizing, enhancing Eurobond approaches by a limited joint liability component would result in a stable, very beneficial and politically feasible tool for a European fiscal system. (c) 2020 Elsevier Ltd. All rights reserved.
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