06 March 2018

Temporary Eurobill Fund (TEF): 30 FAQs

Version 1.0

1.      What is the TEF Plan?

The principles required for progress in deepening EMU are clear and include:

·         No mutualisation of debts.

·         Respect for the post-crisis economic governance system (Maastricht 2.0).

·         A proper role for market discipline.

·         “Safe asset” to reduce the `doom loop’ between banks and their government.

·         “Risk Free Rate” yield curve to support CMU.

·         Financial solidarity with states that respect the rules yet lose market access.

The 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.

·         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