by Andrew Stuttaford

Via the FT:

…[I]n recent weeks, people briefed on internal debates in Frankfurt and Brussels say another incremental idea has caught the interest of EU officialdom: instead of eurozone bonds, the currency block should start with eurozone bills, short-term debt backed by all 17 euro members.

The idea was first floated by economists Christian Hellwig and Thomas Philippon last year in a paper titled “Eurobills, not euro bonds”. The gist of their argument is that by keeping common borrowing in the short end of the bond curve – eurobills would count for all eurozone debt of up to one year’s maturity; two years or more would remain with national governments – EU authorities would have more control over whether issuers are keeping  their commitments to sound budgetary planning.

 “From a governance perspective, the fact that Eurobills have to be rolled over at least once a year gives more bargaining power to the agency in charge of fiscal surveillance,” the two economists write. Countries would be limited to issuing 10 per cent of their sovereign debt through short-term eurobills.

 The idea could gain additional momentum this week when Sylvie Goulard, a French member of the European Parliament, tables a four-step plan where the eurobill proposal is one of a handful of interim steps towards full-scale mutualisation of sovereign debt.

So far as I see it, the mutualization of euro-zone sovereign debt (ie the issuance of debt that becomes a joint and several liability of all euro-zone countries) is incompatible with the basic human (and thus political) reality that the euro-zone’s leadership keeps trying to deny : there is no European people, no demos. And if it’s incompatible with that, it’s incompatible with democracy in any true sense of the word.

But, if we can forget about that old slippery slope (we shouldn’t), how about eurobills as an idea in their own right, as a clever compromise between the demands of democracy and the imperatives of managing a currency union that is, by the misshapen nature of its design, peculiarly prone to liquidity crises?

Well, the report is here, so judge for yourself. I have not had a chance to think it through in full, but it’s impossible to avoid the suspicion that eurobills will impale the taxpayers of Germany, Finland, Estonia (ridiculous, but true: post-Soviet Estonia is helping bail out Greece) and elsewhere even more thoroughly on the hook on which they are already squirming.

And then there is this:

“Participation in Eurobills emissions is conditional on satisfying criteria of economic governance and budgetary discipline”.

But what are these “criteria”?  Remember what happened to the Maastricht “criteria”? There’s talk of “sound long-term fiscal policy”, but “long-term” can be a very useful escape clause….

There’s also the requirement that all participant countries give up the right to issue their own short-term paper. Within the eurobill structure that is being proposed that makes logical sense, but for the taxpayers of the euro-zone’s frugal North, it would mean that the cost of their governments’ short-term borrowing would rise. Is that what they want?

To ask that question is to answer it.

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