Many ideas are on the table, ranging from an extended ESM over a common eurozone budget to new classes of government bonds (red/blue bonds or sovereign bond-backed securities, so-called ESBies). But all these proposals have shortcomings: they may discourage private capital, have not enough “firepower”, take too long to take effect or are fair-weather constructs which in times of crisis do not strengthen containment but foster contagion.

Time to take a fresh look at the idea of an European bond insurer. An European Sovereign Insurance Mechanism (ESIM) would have many advantages: It encourages private sector participation; it ensures that private investors keep their skin in the game as bonds are only partially insured; it has disciplinary effects as debtors have to pay a premium and the volume of insured bonds is limited; it uses the public guarantees very effectively by avoiding to raise funds in the capital markets; and last but not least, it can be implemented relatively quickly as part of the existing institutional structure: it is simply an expansion of the ESM toolbox.