The meeting of European finance ministers on Monday 20 January will not lead to final approval of reform of the European Stability Mechanism (ESM), which will grant new powers to the euro area rescue fund in the event of a macroeconomic crisis.
“There has been no substantial progress” on this issue since the last Eurogroup meeting, said a European source on Wednesday 15 January. The source believed that “technical work” was still required for final agreement on reform of the ESM to be reached, hopefully “in March”.
As was the case in December (see EUROPE 12384/1), discussions are stalled on the issue of whether to include the operating procedures for collective action clauses (CACs) written into sovereign debt issuance contracts as an annex to the revised ESM Treaty. These clauses make it easier to force uncooperative creditors to participate in a country's debt restructuring.
“This is the only issue still to be resolved”, the source said.
France is of the opinion that placing CACs in an annex to the reformed ESM Treaty would give more weight to institutional creditors of a euro area country in difficulty in the event of legal disputes with uncooperative creditors, including 'vulture funds'. Italy, which is the most heavily indebted euro area country, is afraid of being penalised by an increase in the cost of servicing its public debt.
Banking Union. On Monday, the Eurogroup will also not agree on a roadmap for resuming political negotiations aimed at completing banking union in the euro area.
Again, “no agreement is expected”, the source admitted, adding that a new attempt to reach an agreement will be made in “June”.
In December, Italy refused to make the third pillar of the banking union, i.e. development of the European Deposit Insurance Scheme (EDIS), conditional on introducing prudential risk for banks’ exposure to sovereign risk. It promised concrete proposals regarding completion of banking union which, according to the source, have not yet been submitted.
European Semester. The meeting of ministers should therefore be short and focused on budgetary issues. The Eurogroup will, for example, discuss Portugal's revised draft budget plan for 2020, which the European Commission says risks violating the Stability and Growth Pact (see EUROPE 12404/15).
As part of the 'European Semester' budgetary process (see EUROPE 12392/13), there will also be discussion of the draft recommendation on budgetary and socio-economic policy at Euro area level in 2020, which the Commission presented in mid-December
Finally, the Finnish and Spanish ministers will present their governments’ economic priorities to the rest of the group. The new 'Sánchez' government, which needs to submit a revised draft budgetary plan at European level, would like to relax the previously agreed path towards fiscal consolidation. (Original version in French by Mathieu Bion)