07 December 2012

Van Rompuy Final GEMU Report: Graham Bishop's First Comments

1. If this political timetable can be delivered on time and if the economic policies deliver the expected benefits, then investors buying longer-dated euro area government bonds will find the redemption monies are paid to them by a highly integrated political entity.
2. The economy of this entity will be far more competitive globally and its public finances will be far more prudent. But its debt levels will still be high - and vulnerable to any failure to deliver on the promises.
3. Private Sector Involvement (PSI) cannot be airbrushed out of history so the bond market vigilantes have good reason to remain very vigilant – for profit or loss.
4. 'Two-pack' deadlock: Not the moment for the European Parliament to insist on a historic change in the distribution of financial burdens between the members of the euro area. This Parliament cannot claim a mandate from the people of Europe to cause such a change.
5. Euro Treasury Bill Fund role? “A euro area fiscal capacity could indeed offer an appropriate basis for common debt issuance without resorting to the mutualisation of sovereign debt.” The Commission Blueprint continued to include the concept of eurobills.
6. Mutualisation of resolution funding of the E-SIFIs (only institutions directly supervised by 'Europe'?): A powerful incentive to them to blow the whistle on unsound business practices they see emerging amongst their peer group - an additional force for prudent banking.

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© Graham Bishop