Fiscal sustainability in the euro-zone: is there a role for euro-bonds?

This paper assesses the fiscal sustainability of ten Eurozone member countries at a national and aggregate level. It is carried out in light of the relevant literature on monetary unions and the framework of the European Monetary Union vis-à-vis the current sovereign debt crisis. The impact of Eurobonds, which are considered as a viable solution, on fiscal sustainability was empirically tested. The results indicate that only three countries appear to be structurally sustainable whereas the majority of the countries are only sustainable in the short-run and two countries are structurally unsustainable. However, the sustainability of the Eurozone is greatly improved when the Eurobonds are used.