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Can the EU solve the government debt puzzle?

Europe’s government bond auctions are a classic example of market failure. The department of Charlie McCreevy, the EU’s markets commissioner, knows this but can do nothing until it receives an official complaint. If banks are subsidizing the auction process to the tune of €600 million a year, as some claim, why don’t they make the call to Brussels?

The Dutch stay in touch

Why the European government bond markets have failed...and what the European Union would like to do about it

Europe’s primary sovereign debt markets have suffered market failure for many years. But is there anything the EU and its commissioner for internal markets and services, Charlie McCreevy, can do about it? Alex Chambers reports on how sovereign debt managers have coerced primary dealers into subsidizing Europe’s government debt markets by as much as €600 million a year.


European sovereign bond auctions do not work. A lack of price transparency makes participation at auction hazardous for all but the most savvy of operators. Most investors will not even consider using auctions to access the markets.

That doesn’t mean the auctions are failing. Far from it: most public sales of bonds are comfortably covered. In fact bonds sold at auction sell at a premium, and that is a large part of the problem. Around auction time, end investors run for the hills as only primary dealers have an incentive to buy these expensive bonds. This is a real contrast to the US, where investors are participants at auctions.

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