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This Note proposes a time-limited plan carefully structured to avoid opening its members to the virtually unlimited liability of guaranteeing all the debts of other members – as would happen in a mutualised pool of debt.
Ø The Temporary Eurobill Fund (TEF) is entirely complementary to the ESM/OMTs but it is a reward for stability, rather than the ESM’s penalty for instability. It does not require a change to the European Treaties and could operate within a year. This plan should satisfy Parliament’s requirements in its January Resolution “on the Feasibility of Introducing Stability Bonds”. It would facilitate the enactment of the two-pack and give concrete form to some of the proposals in the Council’s December Conclusions.
Ø The TEF’s securities would be seen by the banking sector as exceptionally safe, and would be the most liquid in the euro area – helping the “imperative” need to reduce the bank/sovereign nexus. The resultant boost to confidence would be growth-enhancing.
Ø There must be ex ante controls – especially on debt issuance by participants - so that all members understand their potential liability. The controls would limit any shortening of debt maturity. Participants’ risk exposure should normally be no greater than at present.
The European Council of 13/14 December 2012 carefully avoided momentous decisions which would have immediate effects – but Council agreed on a 'roadmap' with decisions that keep the eurozone firmly on that road leading inexorably to a much greater degree of political union beyond 2014.
The first milestone along that road is the enactment of the 'two-pack' - currently deadlocked between the Parliament and Council co-legislators. Naturally enough, failure to reach even the first milestone would raise serious doubts in the minds of the bond market vigilantes about the depth of commitment to the far-reaching goal of a genuine economic and monetary union (GEMU) repeatedly endorsed by the Heads of State or Government (HOSGs) when requesting Council President van Rompuy to produce a time-bound roadmap to this goal. The cancer attacking the eurozone may be only in remission.
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