Brussels, 13/11/2013 (Agence Europe) - On Thursday, eurozone finance ministers will discuss the end of the Irish aid programme and will publish a statement on bank recapitalisation. On Friday, the EU28 finance ministers will discuss the bank resolution arm of banking union.
The Eurogroup is delighted with the success of the structural adjustment programme that Ireland has been implementing since the autumn of 2010 in exchange for international aid of €67.5 billion (€4.8 billion of which is bilateral loans and €22.5 billion from the International Monetary Fund (see EUROPE 10960). Irish growth is rather weak (0.8% in 2013 and 0.9% in 2014, according to the European Commission's forecasts) and its deficit (6.7% in 2013 and 5.2% in 2014), debt (124.4% in 2013 and 120.8% in 2014) and unemployment (13.3% in 2013 and 12.3% in 2014) remain high, but the markets are confident of the country's future, with interest rates on ten-year Irish bonds being close to 3.5%.
A European source said she expected the Eurogroup to discuss the next move for Ireland and whether it should ask for aid from the eurozone to help it return to the markets, which could take the form of a preventative credit line (ECCL) at the European Stability Mechanism (ESM) to be used in the event of an emergency. In order to be eligible for an ECCL, a eurozone nation has to have difficulty meeting a number of criteria, like respect of the stability and growth pact, macroeconomic imbalances, problem raising capital on the markets, weakened external position or struggling banks.
Any decision would be taken by the Irish government itself. Dublin refuses to breathe a word on the subject, but has reportedly not yet decided one way or the other and consultations with the other eurozone nations, the European Commission and the IMF are continuing. Asked what she thought, the source did not rule out a clean exit, like Spain did for its €41 billion bank bailout programme. Irish Finance Minister Michael Noonan says that the government will publish its decision before the programme ends in mid-December.
One question is whether strings of any type would be attached to the granting of an ECCL, because the Irish government has no desire to find itself being monitored by Europe again. The two-pack of legislation introduces stronger surveillance for countries that exit an aid programme than for countries subject to the excess deficit proceedings. This monitoring would last until Ireland has paid back 75% of the sums it borrowed from its international lenders.
If Dublin does go for an ECCL, a formal decision by the eurozone will be required and the Commission would negotiate the strings to be attached to the aid. Some countries would have to have the decision ratified by their parliaments. Even if Ireland requested an ECCL by Thursday, no formal decision could be taken at the Eurogroup meeting.
The source says that Greece is making slow progress in its talks with the troika of lenders (European Commission, European Central Bank and International Monetary Fund), and the two sides are “miles apart” on measures to be taken and the budget gap for 2014. She warned that if there isn't even the inkling of an agreement on the budget gap, the mission would not be concluded. Structural measures are to be sorted out by the mission, which the Greek press says will be the toughest aspect of the troika negotiations. The Eurogroup will therefore only discuss the Greek situation in passing, but the eurozone does not seem concerned on the financial front. Over the summer, Greek Finance Minister Yiannis Stournaras said that the amount of financing needed by the country at the end of 2013 would be “trivial”. Greece has been awaiting a sub-instalment of aid worth €1 billion since July, which is conditional upon the achievement of certain “prior actions” like reform of the civil service and the privatisation programme. The source regretted that the prior action deadline has been extended, so the Council of Ministers' Euro Group experts cannot discuss payment of the sub-instalment at this stage (half of it will take the form of profits reimbursed by national banks in the Eurosystem), saying that the lack of cash was not a disaster in itself, but government payment arrears were mounting up and could hamper economic development. The source said that small delays cause small problems, but big delays cause big problems.
No decisions are expected on Cyprus. The source welcomed excellent progress in the programme on the budget and bank restructuring, describing the latter as being a bit of a challenge.
Bank recapitalisation. On Friday, ministers will issue a statement on the bank recapitalisation process resulting from the analysis of bank balance sheets by the ECB and the EBA's stress tests before the single bank supervision mechanism comes on stream in November 2014. The source said it would be an EU28 statement about the availability of public backstops. The details of bail-ins are expected to be announced. Banks would initially have to raise capital themselves and sell assets, national bailout funds would be used if necessary and possibly the ESM as a last resort. The EU's state aid rules will apply if state aid is forthcoming, which lay down a bail-in system for uninsured lenders. It will be tricky to decide formally on this because the BRRD directive harmonising national bank wind-up schemes is still being finalised and the new German government has not yet been formed, explained an expert.
Bank resolution. On Friday, the ministers will discuss the single bank resolution mechanism and the Lithuanian Presidency's third compromise proposal. Positions have not budged since the member states' ambassadors examined the matter recently (see EUROPE 10960 and 10959). Germany is often isolated in its pursuit of several demands - the legal basis (Berlin wants Article 352 of the EU Treaty to apply, rather than Article 114); - the European institution that will trigger the wind-up of failed banks; - the scope of application (Berlin says it should only apply to the 130 big banks that will be directly supervised by the ECB from November 2014 onwards); - the setting up of a single resolution fund, which Germany opposes.
France suggests that a limited scope of application and a simple network of national bailout funds is unacceptable because it would amount to a de facto abandoning of the very idea of banking union.
Taxation. Ministers are expected to resume talks on the revision of the savings tax directive, which has been ongoing for four years and which heads of state want to see adopted by the end of the year. Although there is now agreement on spreading the automatic exchange of information (AEI) among national tax offices, two countries still disagree. After agreeing to a transition period (which for Luxembourg starts on 1 January 2015), Luxembourg and Austria do not agree on the details of how AEI would apply. The new Luxembourg government (after the recent elections) has not yet given its representative a negotiating mandate. Another important issue that will be discussed (at the request of France, Germany and Italy) ahead of the next European Summit is the fourth anti-money-laundering directive to update legislation to new forms of money-laundering and the financing of terrorism, which tends to avoid the highly monitored financial sector and make use of the real economy instead. The new directive and the accompanying regulation on information to be provided for funds transfers will introduce into the EU a version of the 2012 recommendations by the International Financial Action Group set up by the G7. The areas of debate include: - setting up registers of information about the final beneficiaries of capital transfers (France and the United Kingdom want information to be collected about trust funds and foundations), where information is to be stored and who can access it; - risk assessment at supranational level (the role of European supervision authorities and mechanisms in ensuring effective international controls); - assessment criteria for non-EU countries' anti-money-laundering systems; - and penalties (France wants administrative penalties because criminal sanctions might be less of a deterrent). The Commission will brief ministers on its draft standard European VAT return (see EUROPE 10948) ahead of its presentation to the European summit in December. (MB/FG/transl.fl)