Fiscal rules often use debt ceilings or sovereign spreads to discipline borrowing, but sovereign bonds also provide collateral and liquidity services that lower yields independently of default risk. I develop a two-period model that decomposes the welfare effects of fiscal limits into fiscal-smoothing, default-risk, and liquidity channels, and embed these mechanisms in a long-term sovereign-default model calibrated to Italy. At the benchmark, a rule based on observed market spreads and one based only on sovereign credit risk can be calibrated to generate nearly identical allocations and welfare. This equivalence is not portable across economies with different access to substitute safe collateral: applying the same common thresholds across members produces systematically different effective debt limits because convenience yields vary with collateral scarcity. More generally, fiscal limits reduce default risk but can also restrict fiscal flexibility and alter the supply and value of safe collateral. The results imply that fiscal-rule design should distinguish sovereign credit risk from the convenience value embedded in market borrowing costs.