Graham Bishop: Temporary Eurobill Fund (TEF) – Summary of the Proposal

Graham Bishop is a member of the European Commission’s Expert Group (press release) studying the joint issuance of debt in the form of a redemption fund and Eurobills. Graham has worked for more than two years to develop a plan for a Temporary Eurobill Fund (TEF)[1]. The Expert Group's wide-ranging Mandate is here.

This proposal will be reviewed fully in the light of the invaluable discussions within the European Commission's Expert Group on Debt Redemption Funds and Eurobills. The Group is mandated to publish its report by March 2014.

Summary of the Proposal

The Temporary Eurobill Fund is carefully structured to avoid opening its members to the virtually unlimited liability of guaranteeing all the debts of other members – as would happen in a mutualised pool of debt with `joint & several’ guarantees. The guarantees would be `pro rata’ – as with the existing ECB/ESM structures.  It is not a `silver bullet’ solution but a relatively modest, though reversible, step towards deepening trust and solidarity amongst euro area states.

The over-arching objectives of the TEF are to restore confidence within the euro area economy by promoting the return of the `Single Market’ in banking and finance. Nonetheless, it recognises the political reality: further integration must be in the form of modest, incremental and reversible steps that are easily demonstrated to benefit citizens.

The financial objectives include:  (i) Eliminate risk of a euro government liquidity crisis (by eliminating `roll-over’ risk for euro area government bonds):  (ii) Create the safest, most liquid euro area financial asset for banks, business and citizens – enhancing the `single market’ in finance:  (iii) Reduce the `doom loop’ between banks/states to improve monetary policy transmission and thus ease the effective monetary tightness for SMEs/citizens in several states. Such an improvement would substantially lower the chance of triggering OMTs  (iv) Reduce the burden on the ECB (v) it would give a small reduction in the interest burden for some states.

More general political objectives include: Deepening trust between euro area states as the TEF gives an incentive to comply with CSR/SGP requirements and permits observations of CSR compliance over an economic cycle before any decision is needed on renewing the Fund. It provides further assistance to states exiting a Programme and it minimises `moral hazard’. The TEF provides the possibility of a modest `fiscal capacity’ and creates the basis for a European Treasury. Ahead of the European Parliament elections next May, a decision to enact the TEF would demonstrate that `Europe’ still has the political ability and will to take significant economic decisions.  Such a decision would be a further, small step along the road to integration – while remaining reversible at any time.  Immediate reversibility is the key to minimising moral hazard.

Basic Features of the TEF:


[1] See detailed TEF paper, as at Feb 2013 - link


© Copyright Graham Bishop, 15th November 2013