Whither Europe (3): the EU’s Sovereign Bills & Bonds
If you thought the US Fed was running an insanely crazy thing, wait until you see what the intellectual minions in the European Commission and European Central Bank are up to
Prelim: I’ve penned another long-form essay for the good people over at Propaganda in Focus, an online webzine brought into existence by Mark Crispin Miller, Piers Robinson, and others a few years ago.
It’s based on initial writings in these pages, and since its content constitutes a refinement (due to editorial oversight, which result in a bit more careful wording), I thought you’d might find the essay interesting, too.
A word of warning: it’s a para-academic piece—keeping with the Propaganda in Focus style—running at over 10K words in the final version; therefore, we decided to split it in two for the long-form essay, but I’ll be posting it here in four instalments.
For the first two instalments, please see the following pieces:
And here’s part three.
Meet the EU’s New Friends: Sovereign Bills & Bonds
In October 2024, a brief press release informed the populace that the ‘Commission launche[d] EU Repurchase Agreement, thereby becoming a sovereign-style issuer on EU capital markets’. This was a significant move — hence its non-discussion by legacy media should immediately raise eyebrows: ‘Following EU bonds’ exponential growth in the secondary market trading in recent years, the launch of the Repo facility will also make the Commission become a sovereign-style issuer on EU capital markets.’ Put succinctly, while virtually no-one was listening, the Commission declared itself sovereign.
What, then, is a ‘repurchase facility’? According to Investopedia, ‘a repurchase agreement is a contract to sell securities, usually government bonds, and repurchase them back shortly after at a slightly higher price’. Its main functions within the economy at-large is to ‘raise short-term capital’, which is ‘crucial… since it’s about nothing less than the liquidity of the capital markets that run our economy’. Technically, a repo facility is a repurchase agreement, and hence it is quite comparable to a secured loan for raising short-term capital, albeit with additional bells and whistles (increased bankruptcy protection) that are essential for the functioning of the economy.
What the EU Commission announced in October 2024 is nothing less than the arrogation of the privileges — i.e., it is an extra-constitutional, extra-legal move — of ‘a sovereign-style issuer’. By comparison, in the United States, it took both the Federal Reserve Act of 1913 and the US entering the First World War before such repo facilities were used from 1917 onwards (and they are essential: since the Banking Acts of 1933 and 1935 and the powers awarded to the Federal Open Market Committee, for the management of both the money supply and credit operations across the US economy every since).1
To begin to grasp the momentous nature of what transpired on 10 October 2024, then, we turn once more to the EU Commission’s press release:
Today the Commission launches its EU Repurchase Agreement (Repo) facility, a form of short-term issuance of EU securities available on-demand to EU primary dealers, to further strengthen the role of EU bonds and, consequently, improve the overall efficiency and fluidity of the EU bonds market.
Given the widespread, if time-worn, characterisation of the First World War as ‘the great seminal catastrophe of the twentieth century’ by US diplomat George F. Kennan, the magnitude of the EU Commission’s move cannot be overstated.
But wait, there is ‘more’: if you’re scratching your heads over the term ‘primary dealers’, it relates to a list of — at the moment 37 — too big to fail banks that includes all the usual suspects, such as BNP Paribas, Deutsche Bank, Morgan Stanley, Societe Generale, and the UniCredit group, among others. On that website, we also read that ‘the Commission will seek to work with banks active in supporting bond issuance and placements in order to successfully place its EU-Bonds and EU-Bills’. Incidentally, the EU’s ‘primary dealers’ are the same ‘too big to fail’ financial institutions that both the Federal Reserve (of New York) and the Bank of Japan rely on: JPMorgan Chase, Bank of America, HSBC, Goldman Sachs, Barclays, Morgan Stanley. The world — rather: ‘global village’ of transnational capital — is a small place after all…
The main difference between these three major components of the ‘collective West’ is that, unlike the US and Japanese governments, the EU Commission has no income in terms of taxes and whose ‘budget’ derives from member-states’ contributions (and which the Ukraine policy blew a gigantic hole into, which led to spendthrift Von der Leyen effectively running out of money before the end of her five-year term). Still, the Commission will now issue ‘EU-Bonds and EU-Bills’, and here is what this means, according to Investopedia:
Government bonds pay bondholders periodic interest payments called coupon payments. Government bonds issued and backed by national governments are often considered low-risk investments. Government bonds issued by a federal government are also known as sovereign debt.
In addition to ‘EU-Bonds’, the Commission apparently also desires to issue ‘EU-Bills’, which, I presume, are the functional equivalent of US Treasury Bills. With these two key terms defined, we can safely consider its implications: the EU Commission has just declared its de facto sovereign authority, which also comes to the fore in the Commission’s account:
Following EU bonds’ exponential growth in the secondary market trading in recent years, the launch of the Repo facility will also make the Commission become a sovereign-style issuer on EU capital markets [their words, not mine].
Through the [repo] facility, the EU offers its primary dealers the possibility to source specific EU bonds on a temporary basis, supporting their capacity to post firm public quotes. The [repo] facility allows investors to be more confident in the terms on which they can trade EU bonds in the secondary market.
A ‘secondary market’ is the place — virtually any kind of exchange or the like where primary dealers then (horse) trade with these bonds and bills. This will likely also include (re)packaging of these ‘EU-Bonds and EU-Bills’ — rendering them into so-called derivatives. Moreover, primary dealers (too big to fail banks) will also use such ‘EU-Bonds and EU-Bills’ as part of their assets (although they are debt obligations), which will further reinforce the cartel-like co-dependency of high finance with the fate of the EU at-large. In other words: the ‘systemically relevant’ banks will become even more systemically relevant, rendering it virtually impossible to prosecute them in the event of wrongdoing or to ever go bankrupt due to their crucial importance for the entire EU (US, Japanese) system: talk about perverse incentives.
Repo facilities are commonly used by sovereign issuers to support the market activity of their primary dealers [they are, in other words, a massive gov’t intervention that favours one kind of market (sic) participants — the too big to fail banks — over everybody else]. The EU Repo facility operates in line with standard practices of peer sovereign issuers [hence the importance of esp. what the US Federal Reserve does]. The launch of the Repo facility marks the implementation of the final measure announced by the Commission in December 2022 to support the EU bonds market. The Commission has now all the tools that it needs to manage successfully a busy period of issuance to end-2026 with the support of its valued Primary Dealer Network.
What is hidden, albeit in plain sight, are the following implications: the EU Commission has a kind of ‘budget’ consisting of the contributions of member-states that are allocated for the duration of an entire five-year term. Apart from these appropriations — most of which are earmarked — the EU Commission has no money to spend, let alone any income. The issuance of ‘EU-Bonds and EU-Bills’, then, turns the EU Commission into a de facto ‘sovereign issuer’, which means that this is the backdoor through which ‘Brussels’ can raise funds from their ‘primary dealers’ and spend without either a written constitution or the authority to tax the EU population directly. And since the Commission is not responsible to any kind of judicial, parliamentary, or other oversight, this is a recipe for abuse, corruption, and political adventurism (disaster).
If, at this point, you’re asking who or what is underwriting these ‘EU-Bonds and EU-Bills’, there are but two options: either the EU Commission securitises its five-year budget (which is earmarked and dedicated to other items than debt-service) and/or otherwise put ‘something else’ aside to secure these ‘EU-Bonds and EU-Bills’ (although it is unclear what that might be). Or the next EU Treaty or whatever backroom shenanigans — here is looking at you, Protocol 14 of the Lisbon Treaty (which permits changes to these structures in the absence of any new treaties or the like, according to one of its primary architects, the late Wolfgang Schäuble) — will impose direct EU-level taxation to enable the EU Commission to make interest payments on these repo deals.
Note, moreover, the de jure absence of the European Central Bank (ECB) in these matters, which I think has been done on purpose. As the ‘factsheet’ that accompanies the press release shows, all of these EU Commission debt instruments are routed through the German Bundesbank and its Luxembourg-based subsidiary Clearstream, a ‘bank for banks’. Yes, the Bundesbank is part of the ECB/Eurozone ecosystem, but I do suspect that the EU Commission is doing these ‘EU-Bonds and EU-Bills’ via the Bundesbank and its subsidiary Clearstream because it’s ‘more convenient’ to do so than via the ECB (which, I suspect, may also lack the legal [sic] authority to issue such repo obligations).
I think this is done on purpose because the ECB, while a strange hybrid in terms of its Statute, which must be read in conjunction with the Treaty of Amsterdam, especially Article 2 (‘the Court of Justice shall have no jurisdiction on measures or decisions relating to the maintenance of law and order and the safeguarding of internal security’) and Article 5 (2), which holds that ‘the relevant provisions of the Treaties referred to in the first subparagraph of paragraph 1 shall apply even if the Council has not adopted the measures referred to in Article 2 (1), second subparagraph’. In other words, we are talking about the proverbial exceptions to whatever rules exist, that is, provided we are talking about the ECB. We note, in passing, that the ECB issues the Euro, but not all EU member-states are in the Eurozone, and there is quite clear wording as regards the prohibition of the ECB to engage in the kinds of debt-issuance the EU Commission has been mulling in autumn of last year. As per Article 21 of the ECB’s Statute, we read (emphasis mine):
In accordance with Article 101 of this Treaty, overdrafts or any other type of credit facility with the ECB or with the national central banks in favour of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.
Here, we can clearly see the loop hole — and it becomes understandable as to why the EU Commission’s ‘Bills and Bonds’ are taken on via the German Bundesbank’ (albeit in the name of the EU as a whole, and not ‘just’ on behalf of the members of the Eurozone) and its Luxembourg-based subsidiary Clearstream, which puts just enough distance between the issuing authority (sic) and whoever is performing these tasks. By declaring itself a ‘sovereign’, the EU Commission is positioning itself effectively above its own ‘primary law’ and will, in due time, likely move towards imposition of direct taxation to underwrite these debt instruments.
We do need to look at some of the puff lingo employed; here’s a bit more from the ‘factsheet’, specifically the section explaining how the repo stuff works:
The EU will create the requested bonds for each trade and cancel them upon conclusion of the transaction so that the volume of outstanding bonds returns to their previous level. The facility will hence not impact the Commission’s planned execution of EU-Bond issuances in accordance with legislative mandates. The evolution of the outstanding amounts of EU-Bonds, taking into account the repo volumes, will be published as per usual practice by the Luxembourg Stock Exchange …
The transaction will be cleared via Eurex Clearing as central counterparty (CCP) where Deutsche Bundesbank will represent the EU in its capacity as General Clearing Member (GCM). Transactions will be settled via Deutsche Bundesbank’s settlement account structure.
The EU has also equipped itself with the means to undertake reverse repo transactions so that it can optimise the return on the cash received as collateral from the Primary Dealer. Under the reverse repo transaction the Commission will invest in tradable securities for the duration of the repo transaction.
If you wish to go down some other rabbit holes, here is a compilation of documents relating to the EU Commissions ‘Annual Borrowing Decision’. For the time being, I shall mention that the most relevant document, entitled ‘Governance decision on borrowing and debt management operations under the diversified funding strategy and related lending operations’, which was issued on 12 Dec. 2023, includes but one mention of the term ‘tax’ (and it does so with respect to the claim that the EU Commission will uphold all its ‘standards on transparency’ and the like, whatever that means).
What are the most likely implications? We note that the EU Commission, via a press briefing in October 2024, declared its intent to henceforth act as a ‘sovereign-style’ issuer of debt obligations to fund whatever Brussels seems fit. This will be done via the German Bundesbank and its subsidiary Clearstream, as opposed to the European Central Bank, and by taking recourse to a network of global too big to fail banks (virtually the same ‘primary dealers’ used by the US Federal Reserve and the Bank of Japan). All of this will be done without any reference yet to be found as to use conventional means, such as taxation, to secure these ‘EU-Bonds and EU-Bills’, in particular in regards to interest payments. Such proposals have been floated every now and then in the past months, and this writer considers the imposition of dedicated EU taxes not far behind. Equally likely seems an impending spending spree by the Commission to out-do member-states’ governments (and/or bail them out in exchange for a new treaty, or ‘primary law’), thus creating the conditions for subsequent transformation of the EU into one gigantic pseudo-federal entity.
This possibility has not escaped the Transatlantic juste milieux, for which this recent piece in Politico, tellingly entitled ‘Europe is going full 1790 America’, serves as a pars pro toto. In it, several succinct, if none-too-subtle, points are made, including most importantly that the issuance of joint debt obligations has historically been ‘a creature of war’ (while both the creation of the Bank of England and Napoleon’s national bank are cited as examples, the creation of the US Federal Reserve remains, incongruously, beyond the piece). In the event, this will likely be sold as a kind of ‘regular’, even business-as-usual, measure imposed by circumstance (‘Russia! Russia! Russia!’) while doubling as the fulfilment of long-held aspirations. All EU institutions—from the bloc’s ‘primary’ and ‘secondary laws’ to the Council (the assembly of heads-of-governments) or the ‘Parliament’ (which, lacking the power to initiate legislation, is not a real legislature) will likely enable the creation of a direct way of taxing EU residents to finance the EU Commission’s debt and spending obligations.
Bottom Lines
I’ll cite a few lines from Margaret Bedford’s seminal paper linked in the below footnote to drive home the magnitude of these developments:
The Federal Reserve System has held Federal Government securities since 1917, when the U.S. Treasury issued a large supply to help finance World War I. Initially, System purchases were made to provide a market for Federal securities and to supplement Reserve Bank earnings. Through its participation in the Government securities market, the System discovered that it could influence bank reserves and money and credit conditions in the economy. System procedures for participation in the market were formalized in the Banking Acts of 1933 and 1935, which gave the Federal Open Market Committee (FOMC) power to determine the extent of System operations.
Federal Government securities are now the Federal Reserve’s largest asset, and the System buys or sells Government securities almost every business day
You must understand the following two aspects—really: flip sides of the same coin—to grasp the magnitude of the EU Commission’s actions:
Gov’t securities are debt obligations, or liabilities
Said debt obligations are the central bank’s largest asset
In short, this is (financial™) alchemy that permits the central bankers—and their ‘primary dealers’—to turn your labour = tax payments into interest payments = revenue for ‘too big to fail’ institutions.
Here’s a list of the EU’s ‘primary dealers beneficiaries’ sucking the fruits of your labour out of your wallets into the cheque books of their CEOs:
I’ve described them—and their connections to the other two centres of global capital (the NY Fed and the Bank of Japan) in this piece:
What we haven’t mentioned is what such repo transactions with gov’t debt do, for which we, once more, turn to Ms. Bedford’s piece:
As a percentage of total Federal Reserve assets, security holdings increased steadily from 44 per cent in 1950 to 81 per cent in 1977. System holdings of Government securities have grown much more rapidly in the 1960’s and 1970’s than in the 1950’s. The average annual growth rate of System security holdings was 8.7 per cent in 1970-77, 8.5 per cent in 1960-70, and only 2.8 per cent in 1950-60.
What we’re observing with the ECB’s move these days is, most likely, going to follow comparable trajectories. But there’s much more to this move:
The growth in the Federal Reserve’s holdings of U.S. Government and Federal agency securities is related to the System’s major purpose, which is to [1] foster growth in the nation’s supply of money and credit that will encourage economic growth, [2] stable prices, [3] high employment, and [4] balance in international transactions. The System influences monetary growth by providing for growth in the nation’s monetary base.
Remember, the US Federal Reserve has a dual mandate of maximum employment and price stability. (As an aside, how that should work with unrestricted mass immigration pushing down wages while simultaneously raising prices due to higher demand is besides me, but then again, I’m not a bona fide™ economist…).
By contrast, the ECB has but one primary mandate—to maintain price stability. And—guess what—faced with a massive bout of inflation, ‘the European Central Bank (ECB) recently decided to address this issue’, the European Law [sic] Blog’s Nuno Albuquerque Matos wrote about a year ago.
If you’d read the linked press release by the ECB, however, you learn the following:
Russia’s unjustified aggression towards Ukraine continues to weigh on the economy in Europe and beyond. It is disrupting trade, is leading to shortages of materials, and is contributing to high energy and commodity prices.
Which came about by the EU imposing tens of thousands of sanctions™ on Russia. Talk about shooting oneself in the foot (or a bit higher) and blaming the other guy for this.
Look, I’m not absolving Russia from anything here, but I’m pointing out that the ECB is blaming Russia! Russia! Russia! for stupid shit the EU Commission did.
And let’s not forget that by exceeding its charter, the ECB is likely venturing into uncharted—extra-legal, that is—territory, to say nothing about macroeconomic interventions that suggest the ECB is liable to do politicking™ instead of guarding its independence from political interference.
We’ve seen this shitshow before: war communism imposed on the nascent Soviet Union by Lenin in the early 1920s, which was a total failure; we’ve also seen this repeated in Mao’s China, which was also a total failure (plus a major man-made famine and other catastrophe to boot).
It looks like the EU is poised to do a variation of this experiment to figure out if doing so is really a supremely bad idea.
The third time’s a charm, I suppose.
Given the laundry list of stuff™ the US Fed is able to do vs. the ECD’s primary mandate, here’s the one thing that will likely usher in the next transformational push by the EU leadership class:
‘Heading for IMF bailout’ and ‘Border farce!’
The Sunday Telegraph carries warnings from leading economists that Britain is heading towards a 1970s-style debt crisis, and a bailout from the International Monetary Fund (IMF). One, a former Bank of England rate-setter, tells the paper that the UK’s borrowing costs are higher than in Greece, and there will be an economic crash unless the chancellor reverses course.
That snippet is from the BBC from a week ago; here’s the underlying reporting™ from the Sunday Telegraph from 23 Aug.
Since then, the spectre of France requiring an IMF intervention has risen, too, as USA Today has reported™.
Meanwhile, Germany’s Die Welt already called for Germany ‘not to follow France into the debt morass’.
These are the people who desire to wage war on Russia.
It looks like this clown car masquerading as high politics will soon crash and burn.
But they’ll cause a lot of havoc before these clowns are sent packing.
And there’s always the option that this is all designed—not by these clowns who are merely carrying out someone else’s orders—to usher in the next version of the EU.
I’ll put this one up as a matter of record-keeping:
Buckle up, folks, this will be bumpy.
Although a bit off-topic, I highly recommend Margaret E. Bedford, ‘The Federal Reserve and the Government Securities Market’, Economic Review (April 1978), available also online via https://www.kansascityfed.org/documents/1338/1978-The Federal Reserve and the Government Securities Market.pdf (25 May 2025).
Money creation is a thieving alchemy. It is worth noticing that Federal Reserve is a creature of Congress which created it. It is free to abolish, reform, restructure,…, as it pleases. Of course, Congress will do nothing, but it could if it wanted. ECB is much more independent from any political structure. And that is how it was architected to be. If the US was being formed today, it would look very much like the EU.
We’ve discussed this previously. I still don’t see how the debt service side is supposed to work.