09 May 2018

Temporary Eurobill Fund (TEF): 30 FAQs

Version 1.1

1.What is the TEF Plan?

• The Objectives:
• Re-enforce financial stability.
• Provide:  a “safe asset” for banks to reduce the `doom loop’ with their government; a “Risk Free Rate” yield curve to support CMU; a simple savings vehicle for citizens.
• Build trust amongst states, institutions and citizens to assist a European demos.
• The Principles:for progress in deepening EMU are clear and include:
• No mutualisation of debts.
• Strengthen the post-crisis economic governance system.
• A proper role for market discipline.
• Financial solidarity with states that respect the rules yet lose market access.
• The Mechanics: TEF is a simple “plainest of plain vanilla” plan:
• For a common institution created by participating Eurozone states to purchase the under-two year debt issuance of those states.
• The institution would finance such purchases by issuing its own bills - matching its assets in overall volume and maturity. “Back to Back” market finance for absolute simplicity and transparency.
• The TEF is a replacement of existing debt, rather than a mechanism to increase debt.
• Why two years? Nothing magical… (i) Seems long enough to give a state in difficulties time to realise and begin to change before markets cut off access (ii) enough issuance to become a major market sector with undoubted liquidity.
• The TEF will charge all borrowers an identical interest rate for a given maturity.
• The TEF’s legal structure would replicate the tried and tested ESM Treaty. It would not require a change to EU Treaties so could be set up very quickly.
• Governance is inter-governmental – not Communautaire at this stage.
• If it did not prove effective, then it would cease to issue new bills and most of its bills would have run off within a year, and completely within two years.

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© Graham Bishop