Brussels, 10/10/2013 (Agence Europe) - The Euro Commissioner has interpreted the Stability and Growth Pact rules applying to any public injections of capital that member states may have to make as a last resort when the bank stress tests are published in 2014.
“Under the Stability and Growth Pact, capital injections are, in general terms, regarded as one-off or temporary measures and regarded as relevant factors for financial stability, which means that they do not count against the member state in the context of the excessive deficit procedure,” explained Rehn in a letter to European finance ministers on Thursday 10 October.
In June, the European Summit asked the member states to be prepared to intervene if necessary to meet capital deficits in bank balances detected by the European Central Bank and the European Banking Authority (EBA) in the summer of 2014. The idea is to reduce the need for taxpayers to bail out banks because EU state aid rules state that bank shareholders and junior creditors must contribute before taxpayers foot the bill for possible bank bailouts.
Member states would be required to act like a responsible investor when bailing out banks, seeking return on their investment, so the capital injection would not be viewed as a financial transaction bearing an impact on the country's deficit, but only on its debt.
Rehn lists three possible cases. (1) For a member state in which the capital injections would lead to an apparent breach of the Stability and Growth Pact rules, infringement proceedings would not be launched. For a country whose debt is above 60% of GDP, proceedings would be launched unless the “amount of capital transferred is limited so that it allows them to keep the nominal deficit close to the 3% reference value.” (2) For a member state already in excess deficit proceedings, a capital injection would not lead to a stepping-up of the procedure as one-off and temporary measures are netted out of the fiscal effort recommended to correct the excess deficit by the deadline. (3) A public injection of capital might delay a country's exit from the excess deficit proceedings, but would not lead to a stepping-up of the procedure. (MB/transl.fl)