Edm Financial

EDM proposes that the issuance of new government bonds and borrowing from the Troika should be stopped immediately in those crisis-influenced countries. Instead, borrowing requirement of public sector should be increased through entering into contract of loan from the country’s banks. EDM is able to help sovereigns in several ways, which includes growth stimulation, while eliminating uncertainties and high potential costs of capital due to holding government bonds that are depreciating, it is able to help banks by providing a chance for substantial natural growth and revenue.

The study shows that EDM has some notable benefits over traditional bond finance as follow:

1. The funding instrument such as contracts of bank loan do not need to be marked to market and is non-tradable. It is able to be kept at face value on books and it is impossible to have attacks that are speculative on the debt
2. The tradable government finance bond is more expensive than the untradeable bank loan funding during the crisis. The debt management offices have not changed from issuing the bonds to borrowing the bank loans through contracts as low interest rate is required than the bond market yields. Due to low interest charges, Italy has avoided costs of billions of euros in 2012.
3. With the presence of EDM, credit rating for sovereign are not required, which costs can be saved and the downgrade of rating is unimportant, the balance sheet of banks and the ability of government to borrow from banks would not be affected.
4. Bank loans are obtainable locally and thus a more steady debt structure is delivered, which is independent from borrowing from foreign countries. In other words, foreign demand is originating from external factor, so dependence on external demand would be lesser than domestic demand in term of IMF-style packages. Sovereign debt crisis and balance of payment crisis can be eliminated since EDM does not required foreign investors to get involve, it can be issued entirely domestically. Hence, the total debt will be lower and the local and Eurozone fiscal and financial will be more stable, and the debt issue would not be socialised across the Eurozone.
5. A sustainable method is allowed for banks to gain returns by lending to the government through growth when the banks want to create return as reserves or capital buffers. EDM benefits the domestic banks by offering augmented revenues which can be used to enlarge capital buffers and build up reserves, then consequently address the problem features of the conventional approaches.
6. The creation of bank credit for transaction is recognised as the core factor to determine the nominal GDP growth. In order to improve the nominal GDP, the increasing of bank credit is needed. In addition, governments can pump-prime bank credit creation through borrowing from banks. Thus, the nominal GDP growth is improved as the domestic demand is being boosted. As a result, the employment rate increase, the expenses for unemployment benefits decrease and tax revenues increase. Hence, the deficits become lower and high GDP is reached by reducing the numerator and raising the denominator.  
7. The bank loans are obtainable from local banks in the absence of the help from government or the Troika. Hence, the obtrusive conditionally can be averted, which includes reformation of supply-side deflationary structure or reduction of spending in education of welfare.

8. By crediting the government's accounts, banks could generate prerequisite funds out of nothing. According to the Basel rules, such sovereign bank lending does not required capital by the lenders. The aggregate total debt would be reduced since the lenders in the conservative rescue packages are not get indebted.

9. The public sector is able to save the fee for issuing bond. The proportion might be small but still it can be significant in total amounts.