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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 first milestone along the road to GEMU 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. This plan for a TEF could facilitate agreement between Parliament and Council. The cancer attacking the eurozone may be only in remission.
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