A Plan for Eurobills: The next step for the euro area?

Recently, a European Commission `Expert Group’[1] published its analysis of the pros and cons of a debt redemption fund versus eurobills. My Plan for a Temporary Eurobill Fund (TEF) was considered. Given the late stage in the life of both the European Commission and Parliament, the Group’s mandate forbade making any recommendation for action, so it will fall to the Eighth Parliament to continue the campaign for deepening financial (and thus political) integration of the euro area. The new Commission will have to respond.   

What is the TEF?

It would follow a similar legal structure to that of the ESM with pro rata callable capital - but with a crucial difference:  only euro states in `good standing’ could join, thus excluding those in the ESM `sin bin’. The economic structure would be the plainest vanilla. The Fund would borrow from the markets - exactly matching quantities and maturities requested by borrower states – for maturities ranging up to two years. The key step is that participants would bind themselves to borrow all new funds in this maturity range only from the TEF. In short order, there would be a genuine, single European yield curve for this market sector – with a TEF size of €0.8 trillion (nearly 10% of GDP). Members would also have the right to re-finance maturing issues by borrowing from the TEF – thus removing roll-over risk and enhancing financial stability.