On Wednesday, 4 December, euro area finance ministers will try to reach agreement on a roadmap to re-start political discussions on the completion of banking union in the euro area, including the establishment of a European Deposit Insurance Scheme (EDIS).
At the end of the Eurogroup meeting held during the evening of Thursday, 7 November, Eurogroup President Mário Centeno declared that he sensed “a new impetus” in the discussions on how to strengthen the Economic and Monetary Union (EMU).
He indicated that work at the technical level is focusing on the features of a steady state for the banking union, including a fully-fledged EDIS and other elements such as national insolvency funds, European banking market integration, regulatory treatment of sovereign risk exposures and the creation of sovereign bond-backed securities (SBBS) for euro area countries.
In a recent contribution that Mr Centeno said was welcomed by all of the ministers, German Minister Olaf Scholz presented his vision for completing banking union (see EUROPE 12364/20).
As part of his campaign to become leader of the German Social Democratic Party, he is advocating setting up a European reinsurance system for bank deposits that could ultimately include a risk-sharing element once measures to reduce these risks are in place, including, for example, further reducing non-performing bank loans (NPL), and introducing a risk linked to bank exposures to sovereign debt into European prudential standards.
On Friday morning, in front of a few journalists, French Minister Bruno Le Maire applauded Mr Scholz's “courage” in “breaking a taboo” around European bank deposit insurance. Later he added: “it is not good for national banks to be too exposed to their own country's sovereign debt. Olaf Scholz has a point and that has always been France's position”. The Netherlands is following the same line. “One of the things we’ve learnt throughout the crisis is that there is no such thing as risk-free sovereign debt”, Dutch Minister Wopke Hoekstra said.
Some southern European countries are nevertheless concerned about the liquidity of their national debt securities if supervisory treatment for bank exposure to sovereign debt were introduced. This would have a “negative impact”, in the opinion of Italian Minister Roberto Gualtieri; instead he was in favour of linking the EDIS to the creation of risk-free SSBS.
On behalf of the European Commission, Pierre Moscovici stressed the importance of finding the right “balance between risk reduction and risk sharing” to complete banking union. Klaus Regling, Managing Director of the European Stability Mechanism (ESM), argued that financial bailouts of euro area countries would have been lower if EDIS had been in place.
Some proposals from a comprehensive package of risk reduction and risk sharing measures are “sensitive”, and any decision that is made will be “balanced” and “responsible” in order “not to put market conditions at risk”, Mr Centeno said in conclusion. For him, this was a means of being cautious about introducing risk related to sovereign debt exposure.
ESM. Ministers also evaluated the work aimed at finalising reform of the ESM. By 2024 at the latest, the euro area’s permanent rescue fund will have new powers to prevent and manage financial crises, and will act as a backstop for the Single Resolution Fund, the financial arm of the resolution component of the banking union (see EUROPE 12276/34).
Mr Regling admitted that the ESM, as the Single Resolution Fund’s lender of last resort, will be limited in its ability to provide it with liquidity of up to €60 billion, although the allocation of the backstop component of the ESM has not been formally approved, according to Mr Regling.
At the beginning of December, the Eurogroup will also be asked to finalise the outstanding elements involving the features of the euro area’s future fiscal capacity, particularly the possibility for euro area countries that want to do so to make contributions in addition to their contributions to the post-2020 EU budget by means of an intergovernmental agreement that still needs developing (see EUROPE 12346/2). (Original version in French by Mathieu Bion, with Damien Genicot)