Follow Us

Follow us on Twitter  Follow us on LinkedIn

04 April 2014

Moving the TEF forward: Reactions to the Expert Group Report

Default: Change to:

Despite some disappointment over the (mandated) inconclusiveness of the Report, it could mark a big step towards the issuing of eurobills. However, before Treaty change might happen in the "medium term", as advocated by Germany and others, an ESM-style intergovernmental agreement would be required.

Many observers (including MEPs) expressed their disappointment with the absence of clear-cut conclusions in the Report. But our mandate was explicit: "The Group will be tasked to thoroughly assess…" and not to produce any recommendations. Our mandate foresaw that "the required deeper integration of financial regulation, fiscal and economic policy and corresponding instruments must be accompanied by commensurate political integration, ensuring democratic legitimacy and accountability".

Even since our appointment, there has been a further rise in the risk of substantial numbers of Eurosceptics being elected in just six weeks’ time to the European Parliament. As a result, even in Britain, Europe is a topic of public discussion in a way that it has not been for decades. So the result of the election may have a far-reaching implication for the development of Europe as it will be seen as a popular mandate for action – or not. Opinion polls suggest that the three largest parties in the Seventh Parliament – all favouring more integration – will actually increase their representation to about 64% of members of the Eighth Parliament. President Barroso’s call to wait for the people’s verdict before thinking about eurobills may get a positive response.

German Finance Minister Schäuble spoke in Bruges last week and called for a change in the Treaty in the "medium term" to underpin greater integration – echoing the repeated statements of Chancellor Merkel.

  • If such a change were to happen, that would be a convenient moment to add in a mechanism to prohibit part of participants’ financial sovereignty – issuing under two-year debt. Such a prohibition would clearly be outside the 'co-ordination' functions currently permitted by the TFEU and require an Inter- Governmental Agreement until the TFEU can be changed.
  • Schäuble also warned against the risks of debt mutualisation and the Expert Group certainly pointed out the difficulties of mutualisation with `joint and several’ guarantees. But the Report was careful to leave the way open to an ESM-style model based on limited, callable capital. That is the model that I have advocated in my evidence to ECON for a Temporary Eurobill Fund (TEF) here.  

If the TEF existed – and it could be issuing within a year – then the decision-makers (in practice, the Finance Ministers) could instruct the managers to buy-in say all under two-year debt of the participating governments. As a result, they would purchase more than half of all the securities that the ECB might think of buying under its OMT programme. Moreover, the TEF’s bills would be ideal assets for the ECB to buy if it decides to do QE.

I commend this plan to the new Parliament and Commission for swift action in their term.

© Graham Bishop

< Next Previous >
 Hover over the blue highlighted text to view the acronym meaning
Hover over these icons for more information

Add new comment