On Tuesday morning, 4 December, the European Union Finance Ministers (all but the British Minister) presented the results of their work on the deepening of Economic and Monetary Union (EMU).
A common backstop will be set up for the Single Resolution Fund (SRF), a function that will be carried out by the European Stability Mechanism (ESM), while the architecture and scope of the ESM will be redefined.
"After several months of intense negotiations and a very tough and long meeting we delivered a comprehensive plan to strengthen the euro", said Eurogroup President Mário Centeno after 18 hours of negotiations.
The Eurogroup's work focused on four points: - the creation of the SRF safety net (see EUROPE 12091); - the reform of the ESM (see EUROPE 12108); - the establishment of a European Deposit Insurance Scheme (EDIS), the third part of the banking union (see EUROPE 12150); - the creation of a budgetary capacity for the eurozone (see EUROPE 12140).
The results of this work will be presented to the Heads of State or Government at the Eurozone Summit on Friday 14 December.
‘Common backstop' of the SRF. “The agreement on the terms of reference for the common backstop for the SRF increases the credibility of the Fund and represents an important strengthening of the Banking Union", said Pierre Moscovici, Commissioner for Economic and Financial Affairs.
The establishment of the SRF safety net still needed some adjustments, as the principle of such an instrument was no longer in question. The decision to activate the backstop will be taken unanimously, in order to comply with the constitutional requirements of several Member States. However, it will be possible to take decisions in an emergency, in 12 or 24 hours.
The common backstop could be operational sooner, as early as 2020, if the level of reduction in non-performing loans (NPLs) is considered sufficient. The objective would be to reduce the average net ratio of NPLs among bank loans to 2.5%. On Wednesday 28 November, the European Commission reported an average rate of 3.4% in July 2018 (see EUROPE 12148).
Reform of the ESM. With regard to the reform of the permanent rescue fund of the eurozone, the Eurogroup validated the agreement between the ESM and the European Commission with regard to the future distribution of the competences of the two entities.
The Ministers also made recommendations on the access of the Nineteen to preventive assistance in the form of credit lines, instruments never before used. The aim was to make the criteria for access to these instruments clearer and simpler, without making them too flexible. They have thus been redefined, and include in particular compliance with EU budgetary rules or a debt sustainability condition.
In addition, the Eurogroup insists that financial assistance can only be granted if the requesting State has a sustainable debt.
It should be noted that the ministers recommend that, from 2022 onwards, the conditions for activating CAC ('collective action clauses'), which are included in the sovereign debt issuance contracts of a eurozone country, should be relaxed in order to facilitate the participation of private investors in the event of a public debt restructuring.
EDIS. The discussions did not agree on a roadmap for starting political negotiations on a European Deposit Insurance Scheme. Work will continue at the technical level with a goal of preparing a report on this issue in June 2019.
Budgetary capacity. Discussions on fiscal capacity for the eurozone failed to reach agreement on the follow-up.
As a reminder, the document submitted by France and Germany last month on this subject, focusing on competitiveness and convergence, differs from the Commission's proposal, which places greater emphasis on the stabilisation function (see EUROPE 12140, 12131).
Positions remain divergent on this fiscal capacity, with the Northern European states, first and foremost the Netherlands, being reluctant.
On the stabilisation function, "we did not reach a common view”, admitted Mr Moscovici.
Ministers referred these issues, in particular the Paris and Berlin proposal, to the Eurozone Summit on 14 December for a possible mandate to discuss a possible architecture.
Finally, the reflection on greater transparency of the Eurogroup's work and an increase in the democratic legitimacy of this informal body was ignored. (Original version in French by Lucas Tripoteau)