Brussels, 11/10/2013 (Agence Europe) - Ten days before the European Summit, the ECOFIN Council in Luxembourg on Tuesday 15 October will work on Banking Union, discussing how to encourage financing for small businesses and how to boost economic and monetary Union (EMU).
The ministers are likely to welcome the adoption on 14 October by EU member states' permanent representatives to the EU (Coreper) of legislation to set up the new bank supervision mechanism. On Friday 11 October, the United Kingdom vetoed this using a parliamentary reservation. It will not be part of the new mechanism and is demanding guarantees on the decision-making procedure at the European Banking Authority (EBA), which will be affected by the creation of the bank supervision mechanism under the aegis of the ECB. The UK says the future measures to set up Banking Union (the BRRD directive harmonising national bank resolution systems and the regulation setting up a bank resolution mechanism) must not alter the balance struck in the negotiations for the bank supervision system. There is talk of a ministerial statement on this matter.
After the talks at Eurogroup on this issue (see EUROPE 10938), the ECOFIN will examine the proposal to set up a bank resolution mechanism, now that the Council of Ministers' lawyers have endorsed the recommended legal basis (Article 114 “Internal Market”) and the interinstitutional architecture, as long as there is better definition of the future resolution committee's powers (see EUROPE 10939). Believing the legal question to be settled, a close source says that the main subjects of negotiation are: - sequencing - should a resolution authority and fund be set up at the start, or should a gradual approach be taken, starting with national resolution authorities and national funds?; - how votes at the resolution committee would work, so that it can take rapid decisions - this is likely to lead to a division between euro and non-euro nations; - the scope of the resolution system - Germany has suggested restricting its scope; - and how bank resolution would be financed.
On the last point, there are two areas of discussion. First the question of public backstops to be utilised as a last resort to recapitalise European banks once the results of the ECB and EBA bank assessments become known in 2014, shortly before bank supervision becomes operational. Another question is that of backstops to help wind up failing banks, particularly in the transition stage of introducing the single resolution mechanism. In both cases, the European Stability Mechanism (ESM) might play a role as a lender of last resort, if the banks are not able to solve their problems alone or raiding accounts does not suffice to fill capital gaps.
It is possible for the eurozone to allow the European Stability Mechanism (ESM) to intervene, but this would require an amendment to the intergovernmental treaty on which the ESM is based. But there are not yet any backstops for non-euro countries that want to join Banking Union, hence some non-euro nations fear their banks would not be treated on an equal basis with their eurozone rivals, thus undermining the functioning of the single market. On Tuesday, the ECOFIN Council will consider the option of the balance of payments EU system acting as a backstop for the recapitalisation of non-euro banks, rather than the ESM.
EMU. The ministers will consider setting up a roadmap of five indicators for assessing the social impact of the economic policies introduced in the EU (see EUROPE 10934). A diplomat said the indicators would make it possible to examine how a more flexible labour market affects youth poverty so that action can be taken if necessary.
The ministers will also consider lessons to be learned from the European Semester process in 2013.
Small businesses. The ECOFIN Council will examine preparations for the joint European Union-European Investment Bank moves to tackle the fragmentation of the credit market by facilitating access to finance for companies in struggling countries in southern Europe. The member states back the two first options for improving financing of the real economy, namely (1) a joint guarantee instrument (potentially combined with a joint securitisation instrument) at the EIB for portfolios of new SME loans -this option would have the lowest leverage but is considered the easiest to implement; (2) a joint securitisation instrument allowing for the securitisation of portfolios of both new and existing SME loans. Similar except that it would apply to both new and existing loans, this option would have higher leverage than Option 1. A diplomat explained that the third option, the pooling of loans, is not for the immediate future.
The ministers will also discuss a number of current inter-institutional dossiers, like revising auditing rules, the insurance market and MiFID (market instruments). (MB/transl.fl)