Brussels, 07/02/2013 (Agence Europe) - On Monday 11 February, the Eurogroup will discuss the details of direct bank recapitalisation from the European Stability Mechanism (ESM) and the financial bailout talks with Cyprus. The finance ministers of all 27 member states will then discuss a number of inter-institutional negotiating questions, such as the eurozone bank supervision system and will adopt a series of conclusions on economic policy in Europe.
The first Eurogroup meeting to be chaired by the Netherlands' Jeroen Dijsselbloem will end early. Taking advantage of the relative calm on the markets, the ministers will pay tribute to former Eurogroup chair Jean-Claude Juncker at a special dinner to be attended by IMF Director General Christine Lagarde.
Earlier in the day, the eurozone will resume talks on the direct bailout of banks by the ESM, which the European Summit wants to be settled by June (see EUROPE 10769). The decision will determine the scope of eurozone action to prevent bank woes from worsening countries' debt. Two topics in particular will be discussed on Monday - changes over time to countries' liability for cash lent to banks and the inherent limits of the eurozone's backstop (the ESM).
“Legacy assets”. A European source explained that there was broad agreement among member states that countries should retain some of the financial responsibility if bank supervision is shifted from national to EU level. Changes in liability over time is a controversial question with lending countries taking a different line from countries likely to benefit from bank bailouts. In the event of losses suffered by a bank supervised by the ECB, the degree of financial responsibility to be retained at national level (and the degree transferred to Europe) will depend on when the European supervisor makes representation to the national supervisory body. The source said that the problem of legacy assets would be settled in the vast majority of cases over the next five years.
Another question for the ministers is the ESM's intervention capacity (it has lending capacity of up to €500 billion), because direct bank recapitalisation will mop up more cash than lending directly to a country. The source said the ministers will be looking at whether the direct bailout money should be capped and whether a first come, first served system should apply. In order to cut the bill for the ESM, private sector involvement could be considered.
Cyprus. The signing of a draft agreement with Cyprus will not take place until mid-March, once the new Cypriot government (following the general elections) is in place. Accused of turning a blind eye to Russian mafia money passing through its financial system, Cyprus will be examined by a new consultancy to check regulations to counter money-laundering. Nicosia has already been given a thumbs-up by Moneyval, a Council of Europe expert committee on measures to tackle money-laundering. Given the huge weight of the Cypriot banking sector vis-a-vis GDP, the country's financial stability is at stake. The completed but unpublished PIMCO report will help the eurozone to examine the situation, and Cypriot banks' recapitalisation requirements. Russia's involvement will also be a matter of discussion. After Russia gave Cyprus a €2.5 billion loan in 2011, it has now agreed to ease the repayment terms.
Greece. The ministers will welcome the fact that the second Greek bailout is going to plan. On Tuesday, Athens announced a primary surplus of €434 million in 2012, compared with a deficit of €3.5 billion at the same point in 2011. The aim is to get the surplus up to 4.5% of GDP by 2016.
On Tuesday, EU finance ministers will examine draft legislation being negotiated with the European Parliament. An Irish Presidency source said that agreement on the common eurozone supervisor and bank capital requirements (CRD IV) was very close. The appointment details for the chair of the Supervisory Committee to be set up at the ECB and accountability to the European Parliament needs to be decided at political level, explained the source. For CRD IV, agreement may be reached at a three-way meeting on 19 February. The negotiations over the “two-pack” of rules adjusting the Stability and Growth Pact are in stalemate over the question of a redemption fund of excess eurozone debt (see EUROPE 10765). The EP is demanding a redemption fund, but the Council of Ministers rejects the idea. The Commission is being asked to publish a statement and the idea of setting up a working group to examine such a fund's feasibility has been mooted.
Along with the EU's position for the G20 Finance Summit in Moscow on 15-16 February, the ECOFIN Council will issue conclusions documents on the European Commission's Annual Growth Survey to launch the European Semester, the early warning system for macroeconomic imbalances and the sustainability of public finance. (MB and EL/transl.fl)