On Wednesday, 4 December, euro area finance ministers decided to set at €68 billion the maximum lending threshold that the European Stability Mechanism (ESM), acting as a backstop, could grant to the Single Resolution Fund (SRF) if it lacks the financial resources to resolve a major failing banking group.
This decision is the only real progress made at the last Eurogroup meeting of 2019. The ministers, in fact, were not in a position to finalise the reform of the ESM, the permanent rescue fund for the euro area, nor to agree on a new roadmap to relaunch negotiations at political level on the completion of the banking union in the euro area through the creation of a European Deposit Insurance Scheme (EDIS).
The final unanimous decision on the reform of the ESM will be taken at a later stage, perhaps in "January", said Eurogroup President Mário Centeno on Thursday 5 December. "We did not adopt [a roadmap] yesterday" on the banking union, he acknowledged.
On the reform of the ESM, which will increase the role of the permanent rescue fund of the euro area in the event of a macroeconomic crisis, the Portuguese Finance Minister referred to "an agreement in principle on a series of elements", while referring to "loose ends of legal nature" that remain to be resolved.
The reform of the ESM does not provide for automatic debt restructuring of a country in difficulty requesting macro-financial assistance, as initially wanted by Germany and the Netherlands.
In the event of an extraordinary decision to restructure a public debt, the public creditors of a country in difficulty could decide to activate the collective action clauses (CACs) introduced in sovereign debt issuance contracts and making it easier to subject recalcitrant creditors to restructuring.
Fearing for the stability of its debt, Italy does not want the regulation defining the terms and conditions for the use of CACs to be annexed to the revised treaty establishing the ESM. According to one source, "there is convergence towards an agreement that would allow the ESM Board of Directors to decide whether or not to add it to the Treaty".
A second controversial element concerns the exchange of information between the Single Resolution Board (SRB) - the European authority responsible for resolving failing banks within the banking union and which manages the SRF - and the European Stability Mechanism in the event of its activation to finance a bank resolution.
"There must be no conditions to mobilise the backstop or a double assessment" by the ESM, otherwise it would be equivalent to a "financial rescue plan", said Italian Minister Roberto Gualtieri, satisfied to have defended his country's interests on the reform of the ESM. He also stressed that the prerogatives of the national parliaments, which will ultimately have to ratify the revised Treaty, will be respected.
The important thing is to achieve a "balanced" reform that guarantees financial stability and satisfies the Nineteen, Mr Centeno said.
EDIS. On the relaunch of the discussions leading to the finalisation of the banking union, the ministers noted that the report submitted by the national experts contained ambitious elements that would help frame the political discussions on how to move forward.
The European Commissioner for the Economy, Paolo Gentiloni, welcomed the fact that the door leading to the completion of the banking union has finally been "reopened". "This is only the beginning" and "yesterday's discussion shows that it won’t be easy", he admitted, setting a "five-year" horizon for successful discussions.
In this dossier, Italy is still in the spotlight. It refuses to allow work on the ‘deposit guarantee’ component of the banking union to be made conditional on the introduction of a risk for banks exposed to sovereign securities in EU prudential legislation.
"This is the most relevant question for our country", said Mr Gualtieri. He announced Italian proposals on the banking union and the deepening of economic and monetary union (EMU), in response to Mr Centeno's call for proposals. Some proposals by German Minister Olaf Scholz (see EUROPE 12364/20), such as the valuation of sovereign debt exposure risk, are "unacceptable for some Member States", Mr Gentiloni said.
There is also no agreement between ministers on the architecture of the EDIS system. The Mediterranean countries argue for a mutualisation of risks related to bank deposits, while Germany is reluctant to do so and would prefer to remain in a system of reinsurance of national deposit insurance schemes. Weakened on the national scene, Mr Scholz was not against a form of mutualisation in exchange for an increased reduction in financial risks, but his position does not necessarily reflect that of the German governing coalition.
The President of the Eurogroup will report in writing to the President of the European Council, Charles Michel, on the progress made on deepening the EMU in preparation for the Euro Summit on Friday 13 December. He indicated that he would not seek a new mandate from the Nineteen, given that the one granted in June by the leaders of the euro area still needs to be fully concluded.
Deepening EMU and strengthening the banking union are essential to ensure sustainable economic growth and create more jobs, Michel said in a statement on Thursday after meeting with Centeno and Commission President Ursula von der Leyen and ECB President Christine Lagarde.
See the letter from Mr Centeno to Mr Michel: http://bit.ly/2DPoXZy (Original version in French by Mathieu Bion)