In a letter to the President of the European Council, Donald Tusk, dated Monday 25 June, the President of the Eurogroup, Mario Centeno, took stock of the discussions concerning the deepening of Economic and Monetary Union (EMU) and reiterated the priority areas for work, ahead of the Eurozone summit scheduled for Friday 29 June.
At last week's Eurogroup meeting, the Eurozone finance ministers examined the Franco-German roadmap on the Eurozone, which Centeno welcomes (see EUROPE 12044).
Banking Union. The Eurogroup President recalls that at the end of May, the Ecofin Council reached its negotiating position with the European Parliament on the 'banking risk reduction' legislative package of November 2017 (see EUROPE 12027). He hopes that the inter-institutional negotiations ('trialogue') will conclude before the end of 2018.
A positive outcome to these negotiations, to allow the 19 to decide at the end of the year, as per the Franco-German proposal, to make the European Stability Mechanism (ESM) into the backstop of the Single Resolution Fund (SRF), to reinforce the stability of the banking sector.
The outlines of the backstop will be honed over the second half of 2018 around the following parameters: firepower (Germany and France are calling for a level in the region of €55 billion from the SRF), time frame (after 2021, according to Paris and Berlin) and decision-making (Berlin wants a right of scrutiny for the Bundestag).
Any decision on the 'backstop' will depend on the level of financial risk reduction, to be analysed on the basis of six criteria: the equity ratio, the leveraged indebtedness ratio, the LCR and NSFR liquidity ratios, the ratio of non-performing loans (NPL) and the ratio of MREL assets that can be mobilised in the event of a bail-in.
“Views on the usefulness of including additional indicators differ substantially, especially on sovereign exposures”, Centeno notes.
The Portuguese minister also recommends an agreement of the Council on the 'NPL' package and on the proposed directive concerning corporate insolvency (see EUROPE 11981, 12023). He also considers that on the basis of a report by the Commission, ECB and ESM expected for July, a European action plan can be agreed upon at the end of 2018 on the fight against money laundering.
As for the creation of a European deposit insurance system (EDIS), the third pillar of Banking Union, negotiations at political level should be able to resume after the Eurozone summit. No reference is made, however, to the need to reach an agreement on the all-important risk-sharing dossier before the end of the current legislative period.
ESM. The Eurozone financial decision-makers will continue their discussions on awarding new competences to the ESM, the permanent and intergovernmental bailout fund of the Eurozone.
Centeno stresses that the aim here is not to reconsider the key principles of the ESM, i.e. the conditional granting of financial aid and the inter-governmental nature of the fund.
The Eurogroup President reiterates the positions of several member states in favour of an increased role for the ESM in devising and monitoring the financial assistance programmes, but without impinging on competences of the Commission.
The introduction of single collective action clauses (CACs) in the framework of the issuance of sovereign debt instruments is also considered, as is a mediation role for the ESM in dialogue between member states and creditors, although not all countries are in favour of this.
Eurozone budget. Centeno said that the 19 cannot agree over the principle of function of a Eurozone budget that would serve to stimulate economic competitiveness and convergence, as observed at the most recent Eurogroup meeting.
The Mediterranean countries are largely in favour, along with Ireland and Italy, while the Netherlands is against.
Discussions will also continue on the Franco-German proposal to create a European unemployment stabilisation fund in the event of a severe economic crisis, on condition that such an instrument does not lead to budgetary transfers. (Original version in French by Lucas Tripoteau)