Euro area finance ministers will try to reach agreement, on Wednesday 4 December, on two issues aimed at deepening Economic and Monetary Union (EMU), namely the reform of the European Stability Mechanism (ESM) and the relaunch of discussions at political level on the completion of the banking union in the euro area.
In June, the Eurogroup had agreed on the main lines of the ESM reform, which provides for a strengthening of the role of the euro area permanent bailout fund in crisis management (see EUROPE 12275/1). The ESM will also be the backstop for the Single Resolution Fund (SRF), the financial arm of the ‘resolution’ component in the euro area.
Since then, work has focused on transposing this political agreement into a treaty, the ratification process of which will be launched once the legislative text has been definitively approved.
This reform has generated considerable political controversy in Italy, where some fear that the financial bailout of a country in difficulty by the permanent bailout fund of the euro area will facilitate the restructuring of the beneficiary country's sovereign debt.
The issue at stake: the terms of use of single-limb collective action clauses (CACs) used when issuing sovereign securities and which will make it possible to force reluctant investors to participate in a possible restructuring of the sovereign debt of a country in the region.
The national experts have been working on a regulation to implement these clauses. "These are technical things. (...) There is nothing toxic" that would be linked to a possible restructuring of public debt, said this European diplomatic source, Monday, 2 December.
One of the things that remains to be discussed, the source nevertheless admitted, concerns the annexation of this regulation to the reformed ESM Treaty. Refused by Italy, this approach would be supported by France, which sees it as a way to have a greater impact in the event of legal disputes involving creditors who are reluctant to participate in a sovereign debt restructuring.
Banking Union. Ministers will also seek to agree on a new roadmap for the completion of a banking union in the euro area, in accordance with the mandate given at the June Summit of the 19 euro-area members (see EUROPE 12280/1).
Presented in tabular form, this roadmap should cover four areas of work: financial crisis management, cross-border relations (relations between home and host countries of banking groups), risk management, including sovereign risk, and financial risk sharing, in particular through the creation of a European Deposit Insurance Scheme (EDIS).
"Rather optimistic" as to the outcome of the work, this source considered that the roadmap in preparation was "much more detailed" than the 2016 roadmap, which had led nowhere, and that it included a "sequencing" of the work to be carried out (see EUROPE 11575/2). The proposals presented also differ, the source said, from the ideas put forward by German Minister Olaf Scholz, who has just lost the race for the presidency of the German Social Democrats (see EUROPE 12364/20, 12366/6).
In this dossier, the Italian authorities also express their reluctance, as they refuse to allow the work in progress to lead to the quantification of a risk for banks' exposure to sovereign debt.
On Monday, at the National Parliament, the Italian Prime Minister, Giuseppe Conte, confirmed that his country was linking the dossiers on the reform of the ESM and the completion of the banking union. And he considered it "essential" to reach an agreement on an EDIS that provides for "risk sharing".
One of the open questions concerns the level of ambition of the European deposit insurance scheme. Refusing to allow its banking sector to take on the losses of a failing national banking sector, Germany has long refused to pool the risks associated with bank deposits. Although Mr Scholz mentioned the possibility of ultimately and conditionally achieving a form of sharing, Berlin prefers to stick to a system of loans between national deposit insurance schemes, which could go as far as reinsurance rules for a national scheme via a dedicated European fund.
The results of the Eurogroup's work will be presented at the Euro Summit on Friday 13 December.
Greece. Finally, Ministers will refer to the report of the last ex-post mission of the third Greek bailout plan, according to which Athens has met its budgetary commitments (3.5% primary surplus, excluding debt service).
This situation paves the way for the disbursement of an aid tranche from the profits made by the national central banks on the acquisition of Greek debt. The Greek authorities would like this aid to be used for investment purposes in addition to repaying creditors.
It is possible, but the discussions will take place "probably next year", said this source. On the other hand, the modification of the Greek budgetary targets does not seem to be, for now, at this stage (see EUROPE 12323/11). (Original version in French by Mathieu Bion)