Dear Chairman Gualtieri,
Be bold: call for a Capital Market Union
- with a Temporary Eurobill Fund as its foundation
First of all, I would like to congratulate you on your election as Chair of such an important Committee of the European Parliament. I am writing this letter to you to suggest some next steps to deepen financial integration, and enhance financial stability – thereby bolstering economic confidence just as the euro area economy seems to be experiencing another round of `jitters’.
Legacy of the Seventh Parliament: The Committee played a crucial role in steering Europe round the edge of the economic abyss whilst legislating substantial reform of the financial system. Sadly, I fear that both tasks are still a work-in-progress, though the building blocks of financial reform are now strongly established, but still in a learning-by-doing mode.
Europe is now acutely aware of the mechanisms that led a loss of financial confidence to feed through into the real economy: rising spreads for `stressed’ governments followed by rising funding costs for banks thought to be guaranteed by them. The net result for the most vulnerable was (and still is) a lethal squeeze from a tight fiscal policy and a monetary policy impact in terms of interest rates paid/loans available which fails to transmit the ECB’s easy money policy.
The ECON Committee of the Seventh Parliament fully recognised that a package of financial regulation reforms and micro (in the sense of individual national) economic reforms would be insufficient to make robust the rapid and deep economic integration which was suddenly forced upon the euro area. The Committee examined various ideas – including Eurobonds and Eurobills – to provide a macro-economic policy framework for the euro area as an integrated entity.
Ideas for the Eighth Parliament: Your Committee will shortly interview the Commissioner-candidates for both economic affairs and financial regulation. The latter will have the added responsibility for framing single-market regulatory policy for the European Union as a whole. The Committee now has a key moment of influence to encourage these Commissioners to commit to principles for bold action joining up both economic and financial regulatory policy. Moreover, such policies should be sufficiently visionary to enable the ECB to adopt correspondingly bold technical measures - within its mandate and without risking accusations of usurping the democratic powers of elected politicians.
My principal macro policy suggestion is for a Capital Market Union to complement Banking Union. At the micro level, my suggestion is for a Temporary Eurobill Fund (TEF) to create a firm foundation for both.
More in attached locked pdf