01 April 2014

MNI: Eurobills issuance would require Treaty change, experts say

Eurobill issuance would inherently require a Treaty change due to rules on budgetary sovereignty, the Commission's expert group concluded in its report. However, expert group member Graham Bishop said there was a way to issue eurobills and test their effectiveness through a temporary arrangement reached through an IGA.

While the sales would increase investor confidence in the region's debt markets, the report noted after more than seven months of study, even if a Treaty change is managed, reaching a final agreement on the joint issuance of eurobills would meet major obstacles when addressing the matter of moral hazard, whereby Member States with a lower risk profile on their debt would be made to pay for the failings of countries whose debt sustainability falls short.

"In discussions about joint issuance, 'moral hazard' is understood broadly as referring to situations where one entity makes decisions about how much risk to take whereas another entity bears the cost if risks materialise. Schemes of joint issuance of debt may create moral hazard understood in that way", the report states.

Still, the experts said that one way to avoid such "hazards" would be to implement a strict set or pre-conditions and constraints that would have to be met before a Member State would be allowed to issue eurobills jointly. "Although joint issuance may provide an important contribution to the reduction of the debt overhang, in particular for highly indebted countries, it is not a substitute for the irreplaceable effort required from them to reduce their debts", the report said.

Addressing lawmakers in Brussels on Tuesday, the experts who made the report said the implementation of a joint issuance scheme would have huge political impacts as the project would require a massive commitment to handing over budgetary sovereignty to Brussels. However, Graham Bishop, a consultant and one of the experts who worked on the report, said there was a way to issue eurobills and test their effectiveness through a temporary arrangement reached through an inter-governmental agreement. Such an agreement could define how sovereignty on joint issuance could be shared without handing over to much power to authorities in Brussels.

"The mechanics of setting up a eurobill system is very simple. But there are big political implications. The only problem would be the national parliaments. If there was political will these bills could be issued within the year", he said. Bishop added that joint issuance would enable the ECB's single monetary policy to be transmitted more smoothly through the euro area and also lower the cost of lending for banks. Some of the suggestions put forward by Bishop included bills that that would run over night to a two-year maturity period.

He also said that participation in joint issuance could only be limited to Member States that are in good standing with the Eurogroup as a way of building confidence. He noted that issuance could have a test period of five years so that national governments can determine whether or not such a scheme is something that is beneficial to Europe's debt sustainability. "National parliaments should keep budgetary control so they could renew the fund every five years for example", he said.

Full article

Expert Group report

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