Finland proposes 'covered bonds' for struggling eurozone states
Finnish premier Jyrki Katainen has suggested that vulnerable eurozone members issue covered bonds, backed by government assets or tax revenue streams, to help calm markets. Katainen’s proposal comes as EU leaders gather in Brussels to consider measures for defending the euro.
"As one practical step, vulnerable member states could issue covered bonds to access markets with lower interest rates," Katainen said in a statement.
Greece, Ireland and Portugal have already been cut off from market financing and Spain and possibly Italy could be facing the same fate as investors worry about their ability to repay their large public debt.
"Covered bonds are backed by government assets or by tax revenue earmarked to service the bonds. This is what Finland did in a difficult economic situation in the 1990s and it is standard practice for banks today," Katainen said.
Finnish Finance Minister Jutta Urpilainen later came out in support of Katainen's proposal.
"Covered bonds could be a part of the solution for those euro countries which now face difficulties raising money from the market at an affordable price," said Urpilainen in a blog post.
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