The study examines how an asset combining sovereign debts could work and whether investors would be interested. Investors would be offered a product that bundled government bonds together, known as a sovereign bond-backed security (SBBS).
Buyers could choose between a "super-safe" senior tranche accounting for 70 percent of the value, a 20-percent "mezzanine" or medium-risk option, and a junior, higher-risk segment sized at 10 percent. ESRB simulations suggest investors holding the very safest debt would only lose money if one of the eurozone's so-called "Big Four" nations - France, Germany, Italy or Spain - defaulted on repayments at the same time as a number of others.
Even multiple smaller countries like Greece or Portugal defaulting would only affect holders of the junior and mezzanine tranches. "By this process of diversification and de-risking, you're expanding the potential pool of very safe assets, that's a big potential prize," Lane said.
The idea for pooling eurozone countries' debt goes back to 2011 and the height of the eurozone crisis. At the time, policymakers feared the so-called "doom loop", where banks holding large amounts of their home country's debt could get into financial difficulty if the value of the bonds fell as markets doubted the nation's creditworthiness.
That might force the government to borrow yet more to rescue the banks - which in turn would further worsen the state's credit. One precondition for introducing the new assets would be changing regulations that currently prize sovereign debt as a very safe asset and penalise securitised (bundled) products, the study found.
In the wake of the financial crisis - in part sparked by securities bundling other types of debt like mortgages, whose value was hard for buyers to judge - regulators cracked down on the practice. But Lane said sovereign-bond backed securities would be "very transparent".
The European Commission is currently mulling whether to press ahead with an SBBS scheme. But the Brussels executive has already been warned against the scheme by a group of experts from national governments. The ESRB plans "would increase costs for the taxpayer" and "harm the efficient functioning of underlying government bond markets", said Anne Leclerq, a Belgian official who chairs a committee of European debt agencies, in a letter to the Commission seen by German business daily Handelsblatt.
They could also complicate procedures for handling state bankruptcies in the eurozone, Leclerq cautioned. If the assets are ever introduced, Lane emphasised that the volume sold would be small at first to test investors' appetite. The market could grow as large as 1.5 trillion euros ($1.85 trillion), he added.