Response to Commission Reflections on Deepening EMU: “Eurobills” as a Safe Asset that blends Fiscal Rules progressively with Market Discipline


Summary and Conclusion

- No mutualisation of debts;

- Respect for the post-crisis economic governance system (Maastricht 2.0);

- A proper role for market discipline;

- “Safe asset” to reduce the `doom loop’ between banks and their government;

 - Financial solidarity with states that respect the rules yet lose market access.

My plan for a Temporary Eurobill Fund (TEF) satisfies these principles. There should now be further [2] examination of its mechanics as the TEF would be a “concrete achievement”.


The purpose of this paper is to consider what `nuts and bolts’ could be fixed – simply and quickly - in the `engine room’ to assist the overall policy objectives – set out in the Appendix.  But these mechanisms should be framed in the context of Schuman’s celebrated 1950 dictum ‘Europe will not be made all at once, or according to a single plan.  It will be built through concrete achievements which first create a de facto solidarity.’ 

Graham Bishop’s Plan for a Temporary Eurobill Fund (TEF) could be a modest, first step along this road by building trust amongst states and with citizens:

However, it is clear that some outcomes must be avoided, as they will be unacceptable in major states such as Germany and France.  In particular, anything that results in the €3 trillion annual output of the German economy taking on a `joint and several liability’ –“mutualisation” - for €8 trillion of Eurozone public debt is manifestly impossible.  That would be equally unacceptable to France with its €2 trillion economy, and markets would regard any such guarantees from smaller economies as utterly implausible.

 


[1]http://voxeu.org/article/completing-emuby Buti, Deroose, Leandro and Giudice – July 2017

[2]This plan was examined by a European Commission Expert Group that included this author, and published its final report in March 2014. http://europa.eu/rapid/press-release_IP-14-342_en.htm

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