Skip to content
Licensed Unlicensed Requires Authentication Published by De Gruyter November 17, 2020

Critical Analysis of the Zero Risk Weight Privilege for European Sovereign Debt in Light of Art. 124 TFEU

  • Patrick Hauser EMAIL logo
From the journal The Economists’ Voice


The zero risk weight privilege for European sovereign debt in the current capital adequacy requirements for credit institutions incentivises credit institutions to acquire and hold sovereign debt. However, it also poses a significant risk to the stability of the banking system and thus the financial system as a whole. It is argued that this privilege should not only be abolished due to the risk it entails but that it is also non conformant with EU primary law. Art. 124 TFEU prohibits privileged access of the EU and Member States' public sector to financial institutions except for prudential considerations. The protective purpose of Art. 124 TFEU to ensure sound budgetary policies by subjecting public borrowing to the same rules as borrowing by other market participants is thwarted by the uniform zero risk weight privilege. Further, as this privilege does not take into account the varying creditworthiness of the individual Member States it does not promote the soundness of financial institutions so as to strengthen the soundness of the financial system as whole, but rather endangers systemic stability. The zero risk weight privilege is therefore not based on prudential considerations and hence violates Art. 124 TFEU.

Corresponding author: Patrick Hauser, Heinrich Heine University Düsseldorf, Institute for Competition Law, Düsseldorf, Germany, E-mail:


Abel, Jeannette. 2019. The Resolution of Sovereign Debt Crises: Instruments, Inefficiencies and Options for the Way Forward, Dissertation. Baden-Baden: Nomos.10.5771/9783845290225Search in Google Scholar

Acharya, Viral, Itamar Drechsler, and Philipp Schnabl. 2014. “A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk.” The Journal of Finance LXIX (6): 2689–739.10.3386/w17136Search in Google Scholar

Acharya, Viral, and Sascha Steffen. 2015. “The ‘Greatest’ Carry Trade Ever? Understanding Eurozone Bank Risks.” Journal of Financial Economics 115: 215–36.10.3386/w19039Search in Google Scholar

Admati, A., DeMarzo, P.M., Hellwig, M.F., and Pfleiderer, P.C. 2013. “Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is not Socially Expensive”. Max Planck Society, Preprints of the Max Planck Institute for Research on Collective Goods Bonn 2013/23. in Google Scholar

Amtenbrink, Fabian. 2018. “Chapter 26: Economic and Monetary Union.” In The Law of the European Union, edited by Pieter Jan Kuijper, Fabian Amtenbrink, Curtin Deirdre, Bruno de Witte, Alison McDonnel, and Stefaan van den Bogaert, 5th ed. Alphen aan den Rijn: Wolters Kluwer.Search in Google Scholar

Andritzky, Jochen, Niklas Gadatsch, Tobias Körner, Alexander Schäfer, and Isabel Schnabel. 2016a. “Removing Privileges for Banks' Sovereign Exposures – A Proposal.” European Economy (1): 139–52.Search in Google Scholar

Andritzky, J., Gadatsch, N., Körner, T., Schäfer, A., and Schnabel, I. 2016b. A Proposal for Ending the Privileges for Sovereign Exposures in Banking Regulation. (accessed February 17, 2020).Search in Google Scholar

Bank for International Settlements. 2013. 83rd Annual Report: 1 April 2012–31 March 2013. Basel.Search in Google Scholar

Basel Committee on Banking Supervision. 2014. Regulatory Consistency Assessment Programme (RCAP): Assessment of Basel III regulations – European Union. (accessed February 17, 2020).Search in Google Scholar

Basel Committee on Banking Supervision. 2017a. Regulatory Consistency Assessment Programme (RCAP): Assessment of Basel III LCR Regulations – European Union. (accessed February 17, 2020).Search in Google Scholar

Basel Committee on Banking Supervision. 2017b. Discussion Paper: The Regulatory Treatment of Sovereign Exposures. (accessed February 17, 2020).Search in Google Scholar

Belkhi, M., Naceuer, S., Chami, R., and Samet, A. 2019. Bank Capital and the Cost of Equity: IMF Working Paper. IMF Working Paper WP/19/265.10.5089/9781513519807.001Search in Google Scholar

Bhala, Raj. 1997. “Equilibrium Theory, the FICAS Model, and International Banking Law.” Harvard International Law Journal 38 (1): 1–57.Search in Google Scholar

Blanke, Hermann-Josef. 2012. “Die Europäische Wirtschafts- und Währungsunion zwischen Krisenanfälligkeit und Reform.” In 10 Jahre Staatswissenschaftliche Fakultät, edited by Arno Scherzberg, 70–121. Berlin/Boston: Walter de Gruyter.10.1515/9783110289107.70Search in Google Scholar

Calliess, Christian. 2012. “Finanzkrisen als Herausforderung der internationalen, europäischen und nationalen Rechtsetzung.” In Veröffentlichungen der Vereinigung der Deutschen Staatsrechtslehrer, Band 71: Grundsatzfragen der Rechtsetzung und Rechtsfindung, 113–82. Berlin/Boston: Walter de Gruyter.Search in Google Scholar

CJEU. 1971. Case C-22/70, 31.03.1971, Commission of the European Communities v Council of the European Communities, ECLI:EU:C:1971:32.Search in Google Scholar

CJEU. 2012. Case C-370/12, 27.11.2012, Pringle (ESM), ECLI:EU:C:2012:756.Search in Google Scholar

CJEU. 2015. Case C-62/14, 16.06.2015, Gauweiler (OMT), ECLI:EU:C:2015:400.Search in Google Scholar

CJEU. 2018. Case C-493/17, 11.12.2018, Weiss (PSPP), ECLI:EU:C:2018:1000.Search in Google Scholar

Commission of the European Communities. 1993. Communication from the Commission to the Council and the European Parliament. COM(93) 371 final – SYN 466 – SYN 467.Search in Google Scholar

Committee for the Study of Economic and Monetary Union. 1989. Report on Economic and Monetary Union in the European Community. Jacques Delors, Chairman.Search in Google Scholar

Delatte, Anne-Laure, Clemens Fuest, Daniel Gros, Friedrich Heinemann, Martin Kocher, and Roberto Tamborini. 2017. The Future of Eurozone Fiscal Governance: Policy Reports. EconPol Policy Reports 01/2017.Search in Google Scholar

Dutch Ministry of Finance. 2018. The Regulatory Treatment of Sovereign Exposures – Reaction to Basel Committee on Banking Supervision. (accessed February 17, 2020).Search in Google Scholar

Enderlein, Henrik. 2010. “Die Krise im Euro-Raum: Auslöser, Antworten, Ausblick.” Aus Politik und Zeitgeschichte 43: 7–10.Search in Google Scholar

Enria, Andrea, Adam Farkas, and Lars J. Overby. 2016. “Sovereign Risk: Black Swans and White Elephants.” European Economy (1): 51–72.Search in Google Scholar

European Banking Authority. 2013. Report on Appropriate Uniform Definitions of Extremely High Quality Liquid Assets (Extremely HQLA) and High Quality Liquid Assets (HQLA) and on Operational Requirements for Liquid Assets under Article 509(3) and (5) CRR.Search in Google Scholar

Fischer, Reinfried and Martin Boegl. 2017. “§ 129.” In Bankrechts-Handbuch, edited by Herbert Schimansky, Hermann-Josef Bunte, and Hans-Jürgen Lwowski, 5th ed. München: C.H. Beck.Search in Google Scholar

Fisher, Peter. 2013. “Reflections on the Meaning of ‘Risk-Free’.” In Sovereign risk: a world without risk-free assets? Proceedings of a seminar on sovereign risk including contributions by central bank governors and other policy-makers, market practitioners and academics Basel, 8–9 January 2013, 65–73. BIS Papers No. 72.Search in Google Scholar

German Council of Economic Experts. 2015. Annual Report 2015/16: Focus on Future Viability: Chapter 1: Economic Policy: Focus on Future Viability.Search in Google Scholar

German Council of Economic Experts. 2018. Annual Report 2018/19: Setting the Right Course for Economic Policy: Chapter 5: Advancing Banking and Capital Markets Union More Decisively.Search in Google Scholar

German Federal Ministry of Finance. 2018. Comment on Discussion Paper on the Regulatory Treatment of Sovereign Exposure, Published on 07.12.2017 (BCBS d425). (accessed February 17, 2020).Search in Google Scholar

Grund, Sebastian. 2017a. “Enforcing Sovereign Debt in Court – A Comparative Analysis of Litigation and Arbitration Following the Greek Debt Restructuring of 2012.” University of Vienna Law Review 1: 34–90.Search in Google Scholar

Grund, Sebastian. 2017b. “Restructuring Government Debt Under Local Law: The Greek Case and Implications for Investor Protection in Europe. Capital Markets Law Journal 12 (2): 253–73.10.1093/cmlj/kmx023Search in Google Scholar

Gual, J. 2011. Capital Requirements Under Basel III and Their Impact on the Banking Industry. “la Caixa” Economic Papers No. 7.Search in Google Scholar

Hauser, Patrick. 2018. Die Privilegierung staatlicher Schuldner: Ausgestaltung und Rechtmäßigkeit der normativen Sicherung staatlicher (Re-)Finanzierungsinteressen, Dissertation. Köln: Carl Heymanns.Search in Google Scholar

Heinemann, Friedrich. 1995. Die Finanzverfassung und Kompetenzausstattung der Europäischen Union nach Maastricht: Eine finanzwissenschaftliche Soll-Ist-Analyse. Baden-Baden: Nomos.Search in Google Scholar

Herrmann, Christoph. 2010. “Griechische Tragödie – der währungsverfassungsrechtliche Rahmen für die Rettung, den Austritt oder den Ausschluss von überschuldeten Staaten aus der Eurozone.” Europäische Zeitschrift für Wirtschaftsrecht 413–8.Search in Google Scholar

Herrmann, Christoph and Corinna Dornacher. 2017. International and European Monetary Law: An Introduction. Cham: Springer.10.1007/978-3-319-57642-8Search in Google Scholar

Hornfischer, Felix and Dominik Skauradszun. 2012. “Von der Staateninsolvenz zur Insolvenzfähigkeit von Staaten.” KTS - Zeitschrift für Insolvenzrech 73 (1): 1–25.Search in Google Scholar

Issing, Ottmar. 1993. “Disziplinierung der Finanzpolitik in der Europäischen Wirtschafts- und Währungsunion?. In Europa vor dem Eintritt in die Wirtschafts- und Währungsunion, edited by Dieter Duwendag and Jürgen Siebke, 181–94. Berlin: Duncker & Humblot.10.2307/j.ctv2jfvjgj.9Search in Google Scholar

Kämmerer, Jörn A. 2013. “Art. 124 AEUV.” In EWU: Kommentar zur Europäischen Währungsunion, edited by Helmut Siekmann. Tübingen: Mohr Siebeck.Search in Google Scholar

Keereman, Filip and Ernst Gnan. 1994. “Introduction to Part 1 – Applying market principles to government borrowing. European Economy – Reports and Studies 1: 3–10.Search in Google Scholar

Kersting, Christian. 2007. “Zinsanpassung nach Basel II.” ZIP - Zeitschrift für Wirtschaftsrecht 56–63.Search in Google Scholar

Kersting, Christian. 2012. “The Case for Abolishing Sovereign Debtors' Privileges.” Zeitschrift für Bankrecht und Bankwirtschaft 439–48.10.15375/zbb-2012-0602Search in Google Scholar

Kierstein, Roland. 2002. “The New Basle Accord, Internal Ratings and the Incentives of Banks.” International Review of Law and Economics 21: 393–412.10.1016/S0144-8188(01)00077-1Search in Google Scholar

Kokott, Juliane. 2012. Case C-370/12, 26/10/2012, Pringle, ECLI:EU:C:2012:675.Search in Google Scholar

Kotzur, Markus. 2015. “Art. 264 TFEU.” In European Union Treaties: Treaty on European Union Treaty on the Functioning of the European Union, edited by Rudolf Geiger, Daniel-Erasmus Khan, and Markus Kotzur. München & Oxford: C.H.Beck & Hart.Search in Google Scholar

Lais, Martina. 2007. Das Solidaritätsprinzip im europäischen Verfassungsverbund. Baden-Baden: Nomos.10.5771/9783845202747Search in Google Scholar

Lamy, Pascal. 2012. “Interview Pourqoui lèuro.” Regards croisés sur l’économie 11: 12–22.10.3917/rce.011.0012Search in Google Scholar

Lang, Michael and Michael Schröder. 2015. What Drives the Demand of Monetary Financial Institutions for Domestic Government Bonds? Empirical Evidence on the Impact of Basel II and Basel III. Frankfurt School – Working Paper Series No. 215. Frankfurt.10.2139/ssrn.2562303Search in Google Scholar

Lanotte, Michele, Giacomo Manzelli, Anna M. Rinaldi, Marco Taboga, and Pietro Tommasino. 2016. “Easier Said Than Done? Reforming the Prudential Treatment of Banks' Sovereign Exposures.” European Economy (1): 73–101.10.2139/ssrn.2772541Search in Google Scholar

Lüttringhaus, Jan. 2012. “Die risikolose Welt der Staatsanleihen unter Solvency II und Basel III.” Europäische Zeitschrift für Wirtschaftsrecht (24): 321–2.Search in Google Scholar

Merler, Silvia and Jean Pisani-Ferry. 2012. Hazardous tango: Sovereign-bank Interdependence and Financial Stability in the Euro Area. Banque de France Financial Stability Review No. 16.Search in Google Scholar

Meyland, Dominik and Dorothea Schäfer. 2017. “Risk Weighting for Government Bonds: Challenge for Italian Banks.” DIW Economic Bulletin 7: 283–90.Search in Google Scholar

Meyland, Dominik and Dorothea Schäfer. 2018. “EU Government Bonds and Banks: Home Bias Pervasive throughout Member States but Capital Requirements Differ Greatly. DIW Weekly Report 49: 494–500.Search in Google Scholar

Nielsen, Erik F. 2016. “Risk-Weighting Sovereign Debt Is the Wrong Way to Go.” European Economy (1): 119–28.Search in Google Scholar

Nitze, Konstantin. 2015. Finanzhilfen für Euro-Staaten in der Krise: Eine EU-rechtliche Bewertung der als Reaktion auf die sog. Euro-Krise gewährten und vorgeschlagenen finanziellen Hilfen. Berlin: Duncker & Humblot.10.3790/978-3-428-54438-7Search in Google Scholar

Ohler, Christoph. 2013. “Art. 125 AEUV.” In EWU: Kommentar zur Europäischen Währungsunion, edited by Helmut Siekmann. Tübingen: Mohr Siebeck.Search in Google Scholar

Ohler, Christoph. 2014. “Die Entkoppelung von Staat und Banken – ein einlösbares Versprechen?” Zeitschrift für Vergleichende Rechtswissenschaft 113: 480–3.Search in Google Scholar

Oosterlinck, Kim. 2013. “Sovereign Debt Defaults: Insights from History.” Oxford Review of Economic Policy 29 (4): 697–714.10.1093/oxrep/grt040Search in Google Scholar

Pierschel, Frank. 2018. Sovereign Exposures. (accessed February 17, 2020).Search in Google Scholar

Rebhahn, Robert. 2015. Solidarität in der Wirtschafts- und Währungsunion: Grundlagen und Grenzen. Baden-Baden: Nomos.10.5771/9783845261553Search in Google Scholar

Reinhart, Carmen M., and Kenneth S. Rogoff. 2009. This Time is Different: Eight Centuries of Financial Folly. Princeton: Princeton University Press.10.1515/9781400831722Search in Google Scholar

Schmitt, Christoph. 2011. “Umsetzung von Basel III in europäisches Recht – Implikationen für die Mittelstandsfinanzierung (Update zu BB 2011, 105).” Betriebs-Berater 2347–50.Search in Google Scholar

Schroeter, Ulrich. 2014. Ratings – Bonitätsbeurteilungen durch Dritte im System des Finanzmarkt-, Gesellschafts- und Vertragsrechts: Eine rechtsvergleichende Untersuchung. Tübingen: Mohr Siebeck.10.1628/978-3-16-153283-2Search in Google Scholar

Schwarze, Jürgen and Philipp van Voet Vormizeele. 2019. Art. 264 TFEU. In EU-Kommentar, edited by Ulrich Becker, Armin Hatje, Johann Schoo, and Jürgen Schwarze, 4th ed. Baden-Baden: Nomos.Search in Google Scholar

Siekmann, Helmut. 2013. The Legal Framework for the European System of Central Banks. White Paper No. 26. Frankfurt. (accessed February 17, 2020).Search in Google Scholar

Sinn, Hans-Werner. 2014. The Euro Trap: On Bursting Bubbles, Budgets, and Beliefs. Oxford: Oxford University Press.10.1093/acprof:oso/9780198702139.001.0001Search in Google Scholar

Smits, René. 1997. The European Central Bank: – Institutional Aspects. The Hague: Kluwer Law International.Search in Google Scholar

Snyder, Francis. 1999. “EMU Revisited: Are We Making a Constitution? What Constitution Are We Making?” In The Evolution of EU Law, edited by Paul Craig and Gráinne de Búrca, 417–477. Oxford: Oxford University Press.Search in Google Scholar

Sterzel, André. 2019. The Preferential Sovereign Bond Treatment in Bank Regulation: Dissertation. (accessed February 17, 2020).Search in Google Scholar

Szász, André. 1999. The Road to European Monetary Union. Houndsmills: Macmillian Press.10.1057/9780230599475Search in Google Scholar

Tuori, Kaarlo and Klaus Tuori. 2014. The Eurozone Crisis: A Constitutional Analysis. Cambridge: Cambridge University Press.10.1017/CBO9781107297289Search in Google Scholar

Tutsch, Ralf. 2015. “Art. 124 AEUV.” In Europäisches Unionsrecht: Vertrag über die Europäische Union, Vertrag über die Arbeitsweise der Europäischen Union, Charta der Grundrechte der Europäischen Union, edited by Hans von der Groeben, Jürgen Schwarze, and Armin Hatje, ed. Baden-Baden: Nomos.Search in Google Scholar

Véron, Nicolas. 2017. Sovereign Concentration Charges: A New Regime for Banks’ Sovereign Exposures. Provided at the Request of the Economic and Monetary Affairs Committe of the European Parliament.Search in Google Scholar

Vincze, Attila. 2009. “Disziplinierung des Budgets der EU-Mitgliedstaaten durch private Finanzmärkte.” Annales Universitatis Scientarium Budapestinensis De Rolando Eötvös Nominatae Sectio Iuridiva Tomus 50, 235–52.Search in Google Scholar

Weidmann, Jens. 2015. Herausforderungen für den Euro-Raum: Was ist geschafft, was bleibt zu tun? Speech at the Schweizer Institut für Auslandsforschung. (accessed February 17, 2020).Search in Google Scholar

Wittelsberger, Helmut. 1994. “New rules for the financing of public expenditure.” ECU 27: 26–32.Search in Google Scholar

Wittelsberger, Helmut. 2003. “Art. 102 EG.” In: Kommentar zum Vertrag über die Europäische Union und zur Gründung der Europäischen Gemeinschaft, edited by Hans von der Groeben and Jürgen Schwarze, 6th ed. Baden-Baden: Nomos.Search in Google Scholar

Received: 2019-08-22
Accepted: 2020-03-23
Published Online: 2020-11-17

© 2020 Walter de Gruyter GmbH, Berlin/Boston

Downloaded on 24.9.2023 from
Scroll to top button