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BRUSSELS, Feb 21 (Reuters) - The European Union needs to issue joint bonds to strengthen its capital markets union project as well as the euro, European Central Bank policymaker Ewald Nowotny said on Thursday.
Nowotny, who is also governor of the Austrian central bank, said Europe would need “some kind of eurobonds” and to start with short-term eurobills jointly guaranteed by member states.
Speaking at a conference in Brussels, he said eurobonds would be seen by foreign investors like China as more interesting than national bonds issued by EU states.
Nowotny said that as long as Europe did not agree to issue joint bonds, the euro, which is shared by 19 nations in the 28-state EU, will never strengthen its international position.
The European Commission wants to promote the euro in oil and commodity trading and challenge the dominant position of the dollar.
Nowotny said “strong safe assets” in the United States amounted to 74 percent of the gross domestic product, while in Germany, the largest economy in the EU, they were at 11 percent of GDP. Adding in other EU countries, the amount reaches 30 percent, he said, underscoring the gap with the United States.
A European Commission plan to create European safe assets backed by euro zone sovereign bonds has been blocked by Germany over fears it would increase German funding costs.
The new security, which has a potential market worth 1.5 trillion euros ($1.7 trillion) according to the European Systemic Risk Board, would not involve any sharing of risks among euro zone countries, the commission said.
$1 = 0.8825 euros Reporting by Francesco Guarascio Editing by Hugh Lawson/Mark Heinrich