© Reuters. EU leaders take part in a European Union summit in BrusselsBy Jan Strupczewski
BRUSSELS (Reuters) – European Union leaders agreed on Friday the ESM bailout fund should play a bigger role in a more integrated euro zone, but left the details of that to December and difficult issues like a euro zone budget or deposit insurance for an undefined future.
Deeper euro zone integration has been championed by French President Emmanuel Macron since his election last year, but has run into opposition from Germany and its allies, wary of sharing more responsibility with less fiscally prudent governments.
“The overall concept of more euro zone integration, I don’t understand what it means,” Dutch Prime Minister Mark Rutte told reporters after the meeting in remarks that echoed the views of many other countries.
“I hate things done for symbolism. This is about real money from real taxpayers,” he said.
As a result, the prevailing message, from a summit that was meant to take key political decisions to make the euro zone more resilient, was to postpone most decisions.
The most tangible result was to allow the European Stability Mechanism (ESM) to lend in an emergency to help failing banks if the existing bank resolution fund SRF runs out of cash, especially before the SRF reaches its full capacity in 2023.
But defeating the whole purpose of the backstop, which was to boost investor trust there would always be enough cash to resolve banks, the leaders backed the German view that the ESM can only play that role from 2020 and only if risks in the banking sector fall so much that ESM help would not be needed.
Once allowed to play the role of backstop, the ESM could offer a revolving credit line of the same size as the bank fund — which at full capacity is to be equal to 1 percent of covered deposits, or some 55 billion euros.
(Graphic: https://tmsnrt.rs/2KdQ31X)
The leaders also agreed the ESM is to have a bigger role in designing and monitoring financial assistance programs, but the details are to be worked out by euro zone finance ministers only by December.
The leaders were also to decide on steps to complete the euro zone’s banking union, which is missing a European Deposit Insurance Scheme (EDIS) that would make bank depositors equally safe across the single currency area.
But Germany and other northern European countries oppose EDIS until risks that banks take, seen in the number of bad loans, are cut, especially in countries such as Greece or Italy.
Even though European Central Bank head Mario Draghi told the leaders that banking risks have already fallen substantially and the very introduction of EDIS would help reduce them further, the leaders only agreed to start, at some undefined point in the future, talks about starting talks on EDIS.
“Work should start on a roadmap for beginning political negotiations on the European Deposit Insurance Scheme,” they said in a statement, effectively freezing the issue.
In a similar vein the leaders offered only a vague promise of further discussions on various elements of deeper euro zone integration such as making sovereign debt restructuring easier.
Germany and France want to achieve that through introducing single-limb Collective Action Clauses (CACs) for new bond issuance to prevent hold-outs. But the idea is vehemently opposed by highly indebted Italy, similarly to setting limits on how many bonds of a single sovereign a bank should hold.
The Franco-German idea of a euro zone budget has also been kicked into the long grass, opposed by a dozen other EU countries, led by the Netherlands. It will be discussed further by euro zone finance ministers without a deadline for agreement.
Source: Investing.com
