Euro area finance ministers will discuss the macroeconomic situation on Thursday 16 June in Luxembourg. They will welcome Croatia’s accession in early 2023 but, contrary to the original intention, will not agree on a comprehensive work programme to complete the banking union in the euro area.
ESM. As members of the board of the European Stability Mechanism (ESM), the 19 ministers will try to find an agreement on Klaus Regling’s successor as the head of the euro area’s permanent rescue fund.
Eurogroup President Paschal Donohoe is continuing his consultations with the 19 Member States with a view to reaching an agreement on who will replace Mr Regling as head of the ESM in early October (see EUROPE 12959/11).
At the end of May, three people - Italy’s Marco Buti, Luxembourg’s Pierre Gramegna and Portugal’s João Leão - were still in the running. Mr Buti came third in the second informal vote held at the Eurogroup meeting. To be appointed, a candidate must receive more than 80% of the votes within the ESM Board, with each euro area country holding a weighted vote according to its share in the capital of the rescue fund.
“If more time is needed, we will take it”, an EU source said on Tuesday 14 June.
Inflation and interest rates. Ministers will be briefed on the ECB’s recent decision to raise its key interest rates in stages over the course of 2022, starting on Thursday 21 July (see EUROPE 12968/1), in order to counter record high inflation driven by energy prices, which have soared with the Russian invasion of Ukraine.
“This is a turning point in monetary policy” which will have repercussions for Member States’ fiscal policy, the source commented.
However, the Eurogroup is not expected to address - officially at least - the recent rise in interest rates on long-term sovereign bonds of euro area countries, a market trend that the ECB’s announcements have fuelled. The interest rate on the Italian 10-year bond is now over 4% and the spread with the German Bund is widening.
According to this source, the euro area is “very well prepared to face the headwinds” and “maintain good market access conditions”.
Other experts also explain that, as rates remain lower than they were 10 years ago during the sovereign debt crisis, each time Italy refinances maturing long-term securities, it saves money in terms of financing needs and therefore improves its public debt management capacity.
Croatia. On a positive note, the Eurogroup will give its political endorsement to Croatia’s entry into the euro area from January 2023. It will base its decision on the positive assessments of the ECB and the European Commission presented in early June (see EUROPE 12963/1).
After a quick discussion at the June European Council, the legislative procedure to allow Croatia to become the twentieth country in the euro area will be finalised at the Ecofin Council on Tuesday 12 July, when the final conversion rate of the kuna to the euro will be decided.
Banking union. On Thursday, in an inclusive format, the Eurogroup will not agree on a comprehensive work programme to complete the banking union by 2030 (see EUROPE 12959/12).
“Unfortunately, it turned out that, despite every one’s efforts, conditions for a full work plan are not in place”, the source confirmed, pointing to the political sensitivity of the issue.
Ministers will seek to provide guidance to the European Commission on legislative reforms for bank crisis management (the BRRD) and national deposit guarantee schemes. These reforms could be adopted before the end of the current legislature. If successful, the ministers will adopt a specific declaration on Thursday.
A partial agreement would still allow progress on “a broad agenda” that will facilitate the management of bank failures in the euro area and could “simplify the next steps” in completing the banking union, the source added. She did not wish to specify the main stumbling blocks that prevented agreement on a detailed work programme.
It would seem that the traditional positions of countries such as Germany, which primarily advocate a reduction in financial risks (treatment of non-performing loans and sovereign risk exposure), and those of countries such as Italy, which advocate risk sharing (European deposit insurance scheme), have not changed much. The current circumstances, marked by the European response to the Russian invasion and an uncertain macroeconomic situation, were not conducive to an agreement.
Greece. Finally, the Eurogroup is also expected to welcome the conclusions of the European Commission’s 14th report on the post-bailout monitoring of Greece (see EUROPE 12958/2).
At the end of August Athens will therefore see the end of the close macro-fiscal monitoring process that was imposed on it in August 2018 at the end of its third bailout.
The ministers are also expected to approve a penultimate aid package of €748 million to ease Greece’s sovereign debt burden. (Original version in French by Mathieu Bion)