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Bill sales “on a limited and conditional basis” could create a “genuine euro area safe and liquid asset” that breaks the vicious circle of bank and sovereign debt, European Union President Herman Van Rompuy said in a position paper released today in Brussels.
An EU summit on October 18-19 will test the appetite for joint short-term bills in top-rated countries such as Germany and Finland, which have ruled out a switch to a full-scale common borrowing system using eurobonds. EU countries plan to complete the roadmap toward a more integrated monetary union at a December meeting.
“I’m not making fully fledged proposals”, Van Rompuy told reporters in Helsinki today. “I’m only asking for further examination.” He said there’s no “clear-cut concept” of a euro area budget at present and called on leaders to explore “how we can give stability to the eurozone and how we can help in some way countries embarking on structural reforms”.
The paper was silent on the size of a possible euro area budget, which could be used to buffer “country-specific economic shocks”. A euro area treasury could have the power to borrow as another possible route to “fiscal risk-sharing”, the paper said.
“There are various ways of progressing toward fiscal union”, according the paper. “The crisis has underlined the high level of interdependence between euro area countries and even beyond. It has shown that national budgetary policies are a matter of vital common interest.”
Non-euro nations that join the common [banking] supervisor, which will oversee all banks within the single currency bloc, should be treated fairly, according to the report. The new supervisor needs to strike a balance between rights and obligations for all participating nations, it said. In the longer term, the EU needs a common framework for shutting down banks “swiftly, impartially and in the best interests of all”, backed by a common resolution authority “with an appropriate backstop”.
The report affirmed the EU’s plan to use the ESM to aid banks directly as long as there are appropriate conditions in place. The report also called for national deposit guarantee schemes built on common standards. It did not include any mention of a cross-border deposit insurance fund, which had been an element of previous EU banking union planning.