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



A personal message from Graham Bishop:

For more than two years, I have put great personal effort (and at substantial cost to my business activities) into developing the concept of a Temporary Eurobill Fund - as my  contribution to the greater integration of Europe. This work has been on an entirely  pro bono basis.  If you would like to support this work for European integration, please become a Friend of GrahamBishop.com - click here


About two years ago, whilst Rapporteur of a working group from the European League for Economic Cooperation (ELEC) chaired by Wim Boonstra, a plan was developed for Eurobills based on a joint & several guarantee structure. However, for the legal reasons now set out so precisely in our Report, I came to the view that only a pro rata guarantee would be politically and legally feasible and so presented my variant - a complete plan for a Temporary Eurobill Fund (TEF) - to the Expert Group. 

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.

Economics

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. 

Legal

Mechanics

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.

 
Consider the "golden scenario": 
 
(In light of the positive experience of collective economic governance, a Debt Redemption Fund could be launched.) 
 
But we should also consider a 'black scenario' of failure. Markets would be extremely aware if a particular state were failing to maintain its commitments and was on a trajectory to exclusion from the TEF. The [70 per cent or more] of its debt not in the TEF would be priced to reflect the logical results of its policy failure and its eventual exclusion from the TEF would be merely another symptom of the national failures – NOT their cause. 

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 presentation