At a session of the Eurogroup an extended format, in Luxembourg on Monday 1 October, the finance ministers of the Twenty-Seven (all but the British minister) held an exchange on the role of the European Stability Mechanism (ESM) in preventing and managing crises as well as on the precautionary conditioned credit line (PCCL) attached to it.
“An agreement is clearly within reach, though discussions need to continue”. Optimism was the order of the day following the Eurogroup meeting on ESM reform, as illustrated by the comments of Mario Centeno, the President of the Eurogroup. Pierre Moscovici, the Commissioner for Economic and Financial Affairs, spoke along similar lines, referring to “substantial progress” and an agreement on 80% of the points.
These exchanges came in the framework of four sessions that will punctuate the Eurogroup meetings ahead of the December meeting, when the results of the ministers' work on the deepening of Economic and Monetary Union (EMU) will be presented, ahead of a debate at the Eurozone summit to be held afterwards (see EUROPE 12052).
The Eurogroup meeting of 7 September allowed the ministers to discuss the common backstop of the Single Resolution Fund (SRF), a role that will be taken by the ESM (see EUROPE 12091). Two meetings in November (on the 5th and 19th of the month) will focus on creating a European deposit insurance system (EDIS) and a fiscal capacity for the Eurozone.
Although no agreement was expected at this meeting, the discussions visibly confirmed some differences over the two points discussed: - the role of the ESM in the prevention, supervision and management of crises; - the PCCL of the permanent bailout fund of the Eurozone, which is available to member states facing financial difficulties (see EUROPE 12105).
Role of the ESM. The challenge of this discussion is to increase the competences of the ESM, but without removing the Commission's current prerogatives in terms of economic policy.
To this end, the legal services of the Council presented an internal note, of which EUROPE has had sight, sketching out possible solutions. They consider that the potential to award new competences appears limited, but it is nonetheless possible that the ESM might be given the capacity to undertake a debt sustainability analysis in the framework of its lending activities.
The northern European countries seem more or less in favour of this option, for both legal reasons (right of scrutiny) and economic ones, as the ESM takes a stricter approach to public finances than the Commission. The southern European countries, on the other hand, have more misgivings.
Precautionary credit line. The future of the PCCL was also up for discussion. The aim here is to simplify and facilitate the terms attached to accessing the tool (currently, six conditions must be met), but without creating a moral hazard by encouraging certain countries to get into excessive amounts of debt and hence send out negative signals to the markets.
The northern European countries emphasise the latter point, whilst the southern European countries tend instead to insist on ease of access to the PCCL.
The ministers discussed the option of linking this access to evaluations in the framework of the 'European Semester' budgetary process. The question including the debt sustainability analysis in the access criteria was also discussed.
Technical work will continue ahead of the December Eurogroup meeting. (Original version in French by Lucas Tripoteau)