The goal of this article is to imagine a European safe asset type asset (a safe haven for troublesome times), specifically for Europe, so must be traded in EUR and have high relevance with European Union, presumably monitored and issued by the European Central Bank.

Naturally, close partners who are geographically close to the EU, and the EU`s prime allies, could also be involved, just to a minor scale. Potentially as buyers who get the right of first refusal, or preferred suppliers; extra bonus point when contracts are issued so that a cheaper systematic rival does not win on cost alone*.

We will first discuss what a European safe asset should be, followed by a few historic and current safe assets, with a roadmap and conclusion to see what appears best.

Safe asset

A European safe asset should meet as many as possible of the following requirements:

• Its value should be based on something that is considered highly reliable. In other cases this is either tax income or a physical asset that has been valued for a long period of time.
• The safe asset should be considered an investment, in any scenario. This makes it widely sought after, so that the infrastructure exist before the safe haven function becomes relevant.
• It needs to be something of which there can be a not theoretically unlimited amount of issues, but the idea needs to exist that this is possible. Also, everybody should be able to buy it, much like other investment products. Otherwise it risks becoming a scarce good instead of something to both hold just in case and as a diversification of your portfolio.
• It must be tied to Europe; either by EU based exchanges exclusivity or a physical storage. Regulation and oversight should be via EU institutions. EUR listing is mandatory! Secondary listing with close allies/trade partners are possible, there just needs to be a preventative measure to keep the asset from fully moving to outside the EU. Receiving a listing of the safe asset could be a diplomatic tool, or reward, to close deal and appease temporary rulers of otherwise friendly nations.

Bonds

One of the most issued safe assets known to man: In general bonds are considered safe(r) because they are given preference over shareholders in case of a bankruptcy. Assuming there is any money left. For this article we will assume bonds issued by countries, as these are deemed even more secure. There is a general assumption that a rich country is virtually guaranteed to not go bankrupt, as it can borrow more or raise taxes, without getting into trouble.

Choosing bonds as our safe asset is not a bad idea: All EU member countries would contribute to paying them, thereby spreading the risk over 28 different countries, with some geographical and political diversities. This option also offers a return that could be above inflation, so there is a profit in holding them.

Naturally the loss of sovereignty could be troublesome.

Currency

At moment of writing, a European country`s currency (not EU) has achieved safe haven status; the Swiss Franc CHF. The goal of an European safe haven, does include the EUR to at least be an candidate for its currency to also be considered such. Though having only the currency is not particularly practical, as buying and selling in times of trouble could make things a lot more difficult as the EU itself remains fractured. The chance that policy makers come up with a plan to handle currency swings that don`t negatively affect more than a few countries is unlikely, thereby making acceptance of that plan a political game. Keep in mind; investors will only keep the currency during normal times, if they expect a profit.

We should mention that the limited size of the Swiss economy does mean that its central bank has to actively sell CHF, to keep the exchange rate where they want it to be. To do so, they buy equity, bonds and currency swaps; some of which are not safe havens or are already owned by most private and public investors (big companies` equity and nation bonds).

Besides a standard currency, it is possible for the EU to create a web of digital assets, with several cryptocoins and -tokens. It is recommended that they either purchase the rights to a few mid sized ones and create their own series based on that, or spend a huge amount of money on talent (man hours plus a few big names to lend credibility) and build everything from the group up. This could also be used for internal services and banking. Please see our article on the subject of crypto 51 Types of cryptocurrency. This option would require being on the forefront of all digital developments, anything else would likely result in outdated products.

Gold

As the ultimate and eternal safe haven gold is a candidate, with the problem that it is physical and difficult to transport. Storage is also costly, only due to security; the metal itself cannot rust or decay. If silver and platinum group metals are added, moisture and sunlight could become problematic, though this is likely solved by most security measures. Just something to consider when choosing where to build the storage facilities.

For the safe asset function other nations and big public entities (at first, to gain scale, later on all parties are allowed) gain the ability to have gold stashes, within the EU. This actually does exist, mostly in private form and is centred around the Alps (Switzerland is not in the EU and occupies most of the Alps). There are other mountain ranges or areas that are not prone to natural disasters or wars in Europe, so there is no reason to not spread things around. Logistically a big port seems good, assuming flood/storm controls are present and way what would be required in the case of maximum rise in ocean levels.

Besides, this can be done at profit, a lot of private parties offer gold storage at 0,5% of value with some additional costs for VAT and import/export in case of silver and platinum group metals. If a government owned organisation would do the metal trading, we can probably offset VAT and im- plus export costs. Thereby creating a cost advantage. Added by the ability to spread locations to one in each country for risk diversification. Your correspondent has worked in several organisation with more than two dozen locations, on over a hundred, and there is no big increase in back office costs when it comes to multiple locations. In fact, if this is a consolidation, it would reduce costs: All EU countries could also use this service.

Issuing a security based on a precious metal would be cheaper, as you can choose where to store it. Only once every fixed interval would there be a need to buy and sell. This would mean relinquishing control of the platform as a widely available security would need to be traded on a regular exchange.

Defensive equity

This option requires unwavering political intervention in at least a few selected industries, that are not overtly sensitive to market turmoil: The safe asset needs to be a group of profitable companies that cannot move abroad for tax, or any other, reason. So policies are needed to keep them onshore, without affecting their value in a negative manner. This means supporting the companies, but also their onshore rivals and even their replacers. Supporting only a selected group and no newcomers, would mean supporting a group that is likely to become outdated.

At time of writing, the European Union has several big corporate entities and a few member countries that want to actively support those companies plus create a ecosystem around them. So the basic groundwork exists, it simply needs to be expanded on.

A few examples of potential industries: Food, consumer goods and electronical equipment. We recommended interpreting the industries as wide as appropriate, to reduce chances of missing out.

Roadmap

The following is a list of potential steps to be taken, when really issuing the European safe asset. We have kept it general, to serve as a starting point for most safe havens.

1 An agreement is made on the limited exposure, or contribution, of each country; so that none are 100% liable for the others. A limited liability could be added, quite possibly from common EU resources; a general reserve fund could be created to mitigate this risk/fund the project, the fund could be filled over the years.

2 A limited issuance is performed, this is to test the water and see what needs to be improved. Invited participants could include a few close allies and institutions within the EU. It must be possible to trade the asset without real limits, otherwise faith in it will disappear.

3 A bigger issuance is performed, this time it is available to all parties friendly to the EU.

4 A plan for continuing availability should be made, assuming it fits the chosen asset. Bonds are not suitable for this step, with exception of a market for already issued ones. New issues are costly and freely issuing on request would make a mess of capital controls. Gold related assets should be realistically possible, in the same manner as countries creating or slimming down their gold reserve. The equity based option should be freely available anyhow, potentially a standardised fund could serve as an easy fix.

5 Maintain the safe haven, update as needed. Expansions with other assets are possible.

Conclusion

As mentioned a few times above, reaching consensus is likely an issue, therefor we recommend focusing on options that already exist, in supranational context. That would give an advantage to bonds and pumping up the currency EUR: We currently have EU issued bonds, listed in EUR, for specific projects, what we discuss here is a more replacing country specific bonds with EU wide bonds. So that will require a shift in mindset; dividing money based on the needs of countries, without letting politics get in the way. Current national bonds can simply fade out, or be replaced, depending on preferences.

The gold options are also viable, as increased integration of financial markets mean less need for each to have their very own reserve. Creating a big shared reserve, also to serve as a guarantee for joint bonds, combined with a smaller country specific reserve could be a middle of the road solution. It is important that the size of these reserves remains liquid, to correspond with the received benefit of issued bonds, and size of the economy.

Having a few corporate national champions, or preferably industries, is something that has to happen anyhow, as a basic requirement for receiving sufficient taxes. It really is a matter of deciding where and how much money is allocated to the industries.

 

*Allowing a party, whose interest do not align with that of Europe, would undermine the purpose of this safe haven. We include the possibility because in real life anything can happen, via proxy operation, buyouts in border regions, etc.