The euro area Finance Ministers meeting on Thursday 7 November will focus on taking stock of several issues aimed at expanding the Economic and Monetary Union (EMU), such as the completion of the banking union in the euro area and the reform of the European Stability Mechanism (ESM), for the purpose of decisions expected in December.
The Eurogroup should first endorse the candidature of the German economist Isabel Schnabel, which was proposed by Berlin to replace Sabine Lautenschläger, the latter having resigned from the ECB's Executive Board in protest of the subsequent accommodative monetary policy measures taken by the monetary institute in September (see EUROPE 12355/16).
Ministers will be informed of the drafting work on the revised treaty establishing the ESM. This reform will provide new powers for the permanent rescue fund of the euro area, which will be able to act as a backstop for the Single Resolution Fund, the financial arm of the resolution component of the banking union.
Also to be discussed, the progress of work on fiscal capacity for the euro area beyond 2020 and, in particular, the possibility for Eurozone countries that wish to provide an additional budgetary contribution to that already provided for in the EU budget via an intergovernmental agreement to be drafted (see EUROPE 12362/1 and 12346/2).
EDIS. Above all, Ministers should welcome the platform of German Minister Olaf Scholz, published on Wednesday 6 November in the FT, which signals his country's openness to the establishment of a European reinsurance system to guarantee bank deposits in the EU.
Mr Scholz imagines a three-stage mechanism to deal with bank failure, with, first, intervention by the national deposit guarantee scheme in the country concerned, then by a European reinsurance mechanism providing liquidity to the national scheme if necessary (in the form of repayable loans), or even, finally, by the Member State concerned.
“A limited loss coverage component could be considered, once all the elements of the banking union have been fully implemented”, Scholz says. The Minister is of the opinion that this risk-sharing measure should be part of a comprehensive package of measures aimed in particular at further reducing risks, including the reduction of non-performing loans (NPL), the treatment of sovereign risk exposure and the harmonization of national insolvency regimes.
On the French side, they welcome these statements, which point to a greater “efficiency” of the still fragmented European banking market and greater European “sovereignty” in financing the economy.
On Tuesday, a European source had mentioned “red lines” being crossed on the creation of a European Deposit Insurance Scheme (EDIS).
Many Ministers will welcome the German contribution on Thursday, while others will want more, such as the issue of “Eurobonds”, predicted a second European source on Wednesday, according to which “the important thing is to unblock discussions at the political level”. The source also wondered whether the position of German Chancellor Angela Merkel was close to that of Mr Scholz on a very controversial issue in Germany, which even divides German Social Democrats.
In December, three EU Council working parties will submit their conclusions to Ministers with the objective of adopting a roadmap, at the December Euro Summit, for the completion of the banking union. The national experts worked on an optimal model for a banking union without questioning the timetable and priorities.
Yet, “sequencing is a critical element”, noted this second source. And, according to the source, if the euro area countries agree on a new roadmap for a European reinsurance system to guarantee bank deposits, it should be up to the European Commission to make a new formal proposal.
The Finance Ministers will have an exchange of views on the economic situation in the euro area in light of the economic forecasts that the Commission will unveil on Thursday, which should confirm the economic slowdown observed mainly in Germany. On Wednesday, the IMF lowered its growth forecasts for the Eurozone, the estimate now at 1.2% of GDP for 2019 and 1.4% for both 2020 and 2021.
But the Eurogroup will not go into detail on the national draft budget plans for 2020. As none of these projects were formally rejected, the Commission will present its recommendations on this subject on Wednesday 20 November.
It should be noted that the Eurogroup will have an exchange of views on investment in innovation and research as a means of boosting productivity and competitiveness in the euro area, based on a presentation by Albert Bravo-Biosca, Director of the Innovation Growth Lab at the Spanish Nesta Foundation. (Original version in French by Mathieu Bion)