Brussels, 24/01/2014 (Agence Europe) - On Monday 27 January, the 18 finance ministers of the eurozone will discuss banking union, followed by an EU28 discussion on Tuesday, although a breakthrough on bank restructuring is not expected until the second fortnight of February.
The first Eurogroup meeting to be attended by the Latvian finance minister as a full member of the eurozone, is not expected to take any major decisions. It will focus on Greece. A eurozone source said that the situation in the country had not evolved over the past week or so. The troika has not yet resumed its fourth monitoring mission, after a third interruption, but the Commission recently said that it expected the troika experts to return to Athens later this month. Meanwhile, talks are continuing at a distance. There is no particular urgency because the markets are not applying pressure. The primary budget surplus means that Greece can finance government business as normal, and the next repayment date is not until mid-May. In Davos, Euro Commissioner Olli Rehn said that the mission would be completed over the next few months. In the short term, the financing of the budget for the second half of 2014 and the situation of Greece's banks after publication of the stress tests need to be dealt with. The Commissioner said reduction of the Greek debt burden and the budget situation for 2015 and 2016 will be discussed in the summer. The potential financing gap that might emerge at the end of 2014 is not expected to cause a problem for the IMF, explained the source (the IMF needs visibility over a year) because there is no doubt that, at the end of the mission, the EU member states will commit to continuing to support the country. Greece hopes to be able to get by without any new loans from its partners. There had been an improvement in the borrowing conditions on the money markets, but the theoretical yields on long-term Greek bonds are still higher than for other countries, explained the source.
The ministers will be briefed on the outcome of the tenth troika monitoring mission in Portugal, but will not make the formal decision to disburse a new batch of aid until the monitoring mission in February (see EUROPE 10986). “Market sentiment is improving nearly by the day”, explained the source. On the other hand, the source said there would not be any talks about the exit strategy (the country is due to exit the aid programme at the end of June this year, see related article).
Spain's bank bailout plan has come to an end, and the Spanish finance ministers will be encouraged by his peers to continue implementing the social and economic plan for tackling unemployment.
Banking Union. On Tuesday, the ECB will brief member states about the introduction of the single bank supervision mechanism (SSM) until it starts to directly supervise the nearly 130 big banks in the eurozone in November 2014. Along with recruiting nearly a thousand members of staff, discussions will cover the division of labour between national bank supervisory bodies and the ECB, and the methodology used in the bank asset quality reviews currently being done by the ECB.
Bank resolution, the second part of banking union, is not officially on the agenda for the Eurogroup or the Ecofin Council, but the Greek Presidency is planning to bring the controversial question up over breakfast on Tuesday in the presence of representatives of the European Parliament, although the Presidency is not expected to be given a new negotiating mandate for the talks with the EP scheduled for Wednesday 29 February.
The main stumbling block in the talks between ministers and the EP is how legislation is to be prepared. The EP prefers the community method, with the support of the ECB and European Commission, and has toughened its stance, in part due to the upcoming European elections, although it is still prepared to talk. Under pressure from Germany, the EU Council of Ministers has opted for the intergovernmental route for setting up the single resolution fund (SRF).
Despite the EP's stance, it does not appear likely that the Ecofin Council will change its mind about having an intergovernmental agreement. A Council source pointed out that this was included in the December agreement and could not be changed, adding that the EP would be attending, as an observer, the intergovernmental conference that will be meeting on Tuesday on the fringes of the Ecofin Council. The EP still aims to try to reduce the scope of the intergovernmental agreement and get various aspects of it brought back into the community method, where it is co-legislator. A high official said that one of the most difficult things to do was to ensure coherence between the intergovernmental and the community.
Due to be finalised on 1 March 2014, the intergovernmental agreement will be open to member states that are not in the euro, but want to join banking union. It will cover the collection at national level of bank contributions for the SRF, allocation of the funds to national compartments within the SRF and the gradually pooling of compartments over a ten-year transition period. During the transition phase, member states have pledged to set up bridge financing to ensure the SRF has enough cash to cover any eventuality. The bridge financing would come from national sources backed by industry contributions or from the European stability mechanism (ESM) to ensure the SRF reaches its cruising speed of €55 billion in order to be able to act as a backstop. An Ecofin Council statement says that the bridge financing needs to be in place when the SRF comes on stream, but does not state whether the details of this would be included in the intergovernmental agreement.
Another variable is reducing the intergovernmental nature of the SRF during the transition phase. The ECB wants the transition phase to be reduced from ten to five years (see EUROPE 11002). A diplomat commented that, if the EP demands a reduction in the transition period, the ministers would be forced to consider it.
Croatia. The ministers are not expected to launch formal excess deficit proceedings against Croatia, whose deficit is expected to exceed the 3% cut-off point until 2016 (see EUROPE 10982). (MB and EL/transl.fl)