Brussels, 19/06/2013 (Agence Europe) - The finance ministers of the eurozone will be called upon, in Luxembourg this Thursday 20 June, to lay down the joint principles which will guide the option for the European Stability Mechanism (ESM) directly to recapitalise banks once the single European supervisor, under the aegis of the ECB, is in place in autumn 2014.
The aim is to honour the commitment of the eurozone summit of June 2012 which, in addition to banking union, decided to break the vicious circle of banking difficulties and the sovereign debt crisis.
“Three or four points” will be decided upon, according to a European source. The first concerns the “total volume” which can be allocated to direct recapitalisation, the source added, referring to a range of “between €50 and 70 billion” of the €500 billion available to the ESM. The eurozone member states will retain some of the financial responsibility of the recapitalisation exercise, but no more than 20% of the total. This step aims to oblige the states to make efforts to clean up their banking sectors.
Retroactiveness. According to the same source, the eurogroup will hold an “interesting” discussion on the possibility that this instrument be made retroactive, in other words, for the ESM to be able to recapitalise banks which states rescued, or will have rescued, using public funds before single supervision came in. The decision to recapitalise the bank retroactively will probably be made “on a case-by-case basis”, the source explained.
Among the options included in the draft text of 4-5 pages to be approved by the ministers are the creation of an ad hoc entity managed by the ESM and responsible for recapitalisation operations, and a possible private sector contribution.
European semester. Against the backdrop of the recession in 2013 (when GDP fell by 0.4% in the eurozone, according to the Commission), the 17 will tackle the specific recommendations made to them by the European Commission at the end of May, on the basis of the national stability and reform programmes (see EUROPE 10855). Some countries will enjoy extra time (two years for France, Spain and Slovenia and one year for the Netherlands) to bring their public deficit back below the 3% mark, as long as they undertake the structural reforms included in these recommendations. Italy could come out of the excessive deficit procedure (see other article), whilst a similar procedure may be opened against Malta. Having won the Commission over, “it remains for the member states around the table to be convinced”, said a diplomat from a country granted extra time. These recommendations, which will be endorsed subject to possible modifications by the Ecofin Council on Friday, will then be adopted by the European Council and included in the national draft budgets for 2014, the first for which the Commission has a right of scrutiny, under the revised stability pact.
Latvia. The Eurogroup is expected to give its green light to Latvia's joining the Eurozone. (MB/transl.fl)