The German finance minister, Olaf Scholz, wants rapid action on reducing banking risks, for instance by limiting gross non-performing loans (NPL) to 5% before the European Stability Mechanism (ESM) is authorised to play the role of common backstop for the Single Resolution Fund (SRF), the financial arm of Banking Union in the Eurozone.
We need to act quickly to reduce the stock of NPL, the minister told a debate at the economic and monetary affairs committee of the European Parliament on Thursday 12 July.
In line with the Franco-German agreement of Meseberg on the deepening of Economic and Monetary Union (see EUROPE 12044), any decision of the Eurozone countries on the backstop will depend on the measures taken to reduce NPL and, in any event, will not take place before 2020.
Addressing the European Parliament, Scholz said that he considers 2024 to be a reasonable deadline to implement the backstop, as it corresponds to the end of the build-up period of the SRF.
He stressed the need to comply with the constitutional requirements of the member states by identifying a governance mechanism for the backstop, to guarantee decision-making powers for the national parliaments, whilst allowing decisions to be made quickly in the event of the resolution of a failing bank. “In several member states, it is not possible to delegate the decision-making powers”, he stressed.
Addressing the same parliamentary committee the day before, Elke König, the chair of the Single Resolution Board, called for a safety net that is capable of acting quickly should the SRF fund prove insufficient to be set in place as soon as possible.
She also warned against creating a second level of criteria for the mobilisation of the ESM in the event of the resolution of a major Eurozone banking group.
“The backstop comes under the resolution authority, it is not a programme for any given country. There cannot be a second layer of conditions for the resolution regime”, she stressed.
She argued that with the increase of bank deposits in the EU, the SRF fund, which currently has €25 billion, will have an envelope of far more than the €55 billion initially anticipated in 2024.
ESM. On Thursday, Scholz made the case for a single, global reform of the ESM, the permanent bailout fund of the Eurozone. This reform would be carried out firstly on an inter-governmental basis before the ESM would come under EU law in a second phase.
“We could envision the ESM having the responsibilities of a European Monetary Fund”, the minister said, stressing the need for the national parliaments to have decision-making powers. He also called for a sovereign debt restructuring mechanism to break the vicious cycle of excessive government debt and banking difficulties.
Under the Franco-German agreement, however, the ESM should no longer directly recapitalise a banking system, he added. This competence has never been activated.
After the work, Roberto Gualtieri (S&D, Italy) stressed that the Parliament, which considers that the ESM should come under EU law, was on the same wavelength concerning the legitimacy of the national parliaments.
“We support the EIB model within the EU rules, with full respect of national parliaments, because the money comes from the member states”, he said. (Original version in French by Mathieu Bion)