Graham Bishop's presentation to ECON Committee of European Parliament: Eurobills

01 April 2014

Graham Bishop presented his ideas on a Eurobill variant that is based on a pro rata guarantee and thus would be politically and legally feasible: a Temporary Eurobill Fund (TEF).

The Expert Group has laid out sound reasons why action is in the general interest of all EMU participants today; the objectives of joint issuance; and the risk of moral hazard. Naturally, market participants have a view about the arrangements that will be ideal for them, but Parliaments must – absolutely properly – protect the long-run interests of their electors. The art of the possible is to find an acceptable 'middle way', which the TEF could provide.


a) A probationary/'test run' so that national Parliaments can consider making it permanent only if successful.
b) However, issuance could be halted by the decision-makers at any time, and liability/moral hazard will run off quickly.
c) National Parliaments keep budgetary control by renewing the Fund say every [5] years. 



Possible Outcomes:

  1. Safe, liquid and highly marketable asset so reducing the doom loop between banks and their sovereign – by at least one third.
  2. Improving this element of the credit quality of banks lowers their funding costs and enable the ECB’s single monetary policy to be transmitted more smoothly throughout the euro area.
  3. TEF bills become a natural asset for banks/insurers to hold: zero risk-weighted and no limit on large exposure - but this system must be reviewed soon to restore the credibility of the `no bail-out rule’.  Current regulations leave financial institutions little alternative but to roll maturing national bills into TEF Bills.

I believe that a plan along these lines is completely feasible - both as a simple insurance policy against future storms that remain all too likely, and as a series of small, but reversible, steps towards deeper integration.

Full article

© Graham Bishop