The European Affairs Minister of the Italian Government, Paolo Savona, is calling for a European bond amid renewed economic volatility.

In an open letter to the Financial Times on Wednesday, Savona calls for “an asset” that would promote investment and economic stability, whilst strengthening the international role of the euro.

The Italian economist notes that the current structure of the Eurozone with differentiated risk assets gravitating around the German Bund is inadequate for two reasons: first, because investors seek safe assets as not all investors can deposit at the European Central Bank (ECB) and secondly because the German government issues less debt.

Savona’s proposal is timely.

This week Germany sold new Bunds that do not provide investors with regular interest payments for the first time since the aftermath of the 2016 Brexit vote. Bunds were sold at a minus 0.26% negative yield, that is, the lowest on record for 10-year bonds. By contrast, Italy’s 10-year bonds are trading with a yield of around 1.8%, while those on Greek paper are 2.2%.

Savona is careful to categorically exclude the possibility of debt mutualization, which is unconstitutional in Germany and vehemently opposed by EU net budget contributors. “Member states should remain fully responsible for their own debt,” Savona asserts.

However, the Italian proposal is to replace a share of national debt sales with multinational debt, managed by a multilateral authority, pointing to the European Stability Mechanism. In this scheme, the ESM would have a wider mandate than crisis-management, selling debt backed by eurozone member states on behalf of all member-states rather than merely states facing a debt crisis.

The difference is that interest paid on ESM loans would be equal for all member states.

As a creditor, the ESM would be formally given a higher ranking than other lenders to eurozone governments, while each member state would have a ceiling to how much multilateral debt is can accumulate, protecting the ESM’s creditworthiness without reducing the incentive for national governments to pursue responsible fiscal policies.

Savona notes that this would give rise to a truly European yield curve, with ESM bonds emerging as a global benchmark and be the main asset bought by European banks.  This would allow banks to gradually reduce their balance sheets’ exposure to national debt without creating problems for member states, reducing the so-called “death-loop” faced by major systemic lenders. In sum, this would create the conditions required for a banking union with a genuine European deposit insurance scheme.