Friday

29th Mar 2024

Eurozone hawks deal blow to bank bailout plans

  • Investors are once more doubting eurozone politicians' conviction (Photo: Popicinio-01)

EU officials went into damage control mode on Wednesday (26 September) after the finance ministers of Germany, Finland and the Netherlands said the old debt of troubled banks should not be put on the eurozone bailout fund's books.

Earlier in the day, the value of Spanish bonds fell, as investors wondered yet again whether the country's bad banks will be saved by the richer eurozone countries using the so-called European Stability Mechanism (ESM), a €500 billion fund due to be inaugurated on 8 October.

Read and decide

Join EUobserver today

Get the EU news that really matters

Instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

Back in June, during an all-night session among EU leaders, Spain and Italy were told the ESM would be able to recapitalise banks directly once a single supervisor for eurozone banks is in place.

It was also agreed that Spain's €100 billion bailout for its banking sector would be put on the ESM books once the supervisor is in place, so Madrid can get its balance sheet back on track.

But on Tuesday (26 September), Finland, Germany and the Netherlands - the acknowledged hawks of the eurozone - issued a joint statement suggesting old debt of troubled banks should not be taken up by the joint fund.

"The ESM can take direct responsibility of problems that occur under the new supervision, but legacy assets should be under the responsibility of national authorities," the statement reads.

A commission spokesman on Wednesday downplayed the statement as a "negotiating position" since the technicalities of the new supervisory body and the ESM are still to be ironed out.

"It's just a normal process that, after the political guidance that was given by the heads of state and government, there is technical work on the different elements, different details, and the different guidelines that have to be fleshed out to allow the proper implementation of this financial instrument at the beginning of next year," said Olivier Bailly.

He added the commission wants to see the new banking supervision rules agreed by the end of the year, as EU leaders had jointly stated in June.

But the three top-rated countries want to take things slowly.

"We agreed that it is important to achieve rapid progress on this issue, but it cannot happen at a cost of the quality of the new supervision," the joint statement reads.

They also indicated that direct recapitalisation of banks should happen not on day one of the new supervisor (based within the European Central Bank in Frankfurt), but only after this new body "is established and its effectiveness has been determined."

The "quality" of banks to be propped is also a sticking point.

The EU commission had suggested that the most troubled ones should be first to get direct help from the ESM. But the three ministers disagree: "The recapitalisation should always occur using estimated real economic values."

As one EU diplomat told this website: "We don't want to pump money into some bad banks, these have to be viable ones."

All decisions regarding the establishment of the new banking supervisor and of recapitalising banks directly through the ESM have to be taken by unanimity in the Council of finance ministers.

'Swiftly dial back' interest rates, ECB told

Italian central banker Piero Cipollone in his first monetary policy speech since joining the ECB's board in November, said that the bank should be ready to "swiftly dial back our restrictive monetary policy stance."

Opinion

EU Modernisation Fund: an open door for fossil gas in Romania

Among the largest sources of financing for energy transition of central and eastern European countries, the €60bn Modernisation Fund remains far from the public eye. And perhaps that's one reason it is often used for financing fossil gas projects.

Latest News

  1. Kenyan traders react angrily to proposed EU clothes ban
  2. Lawyer suing Frontex takes aim at 'antagonistic' judges
  3. Orban's Fidesz faces low-polling jitters ahead of EU election
  4. German bank freezes account of Jewish peace group
  5. EU Modernisation Fund: an open door for fossil gas in Romania
  6. 'Swiftly dial back' interest rates, ECB told
  7. Moscow's terror attack, security and Gaza
  8. Why UK-EU defence and security deal may be difficult

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic Food Systems Takeover at COP28
  2. Nordic Council of MinistersHow women and men are affected differently by climate policy
  3. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  4. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  5. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  6. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?

Stakeholders' Highlights

  1. Georgia Ministry of Foreign AffairsThis autumn Europalia arts festival is all about GEORGIA!
  2. UNOPSFostering health system resilience in fragile and conflict-affected countries
  3. European Citizen's InitiativeThe European Commission launches the ‘ImagineEU’ competition for secondary school students in the EU.
  4. Nordic Council of MinistersThe Nordic Region is stepping up its efforts to reduce food waste
  5. UNOPSUNOPS begins works under EU-funded project to repair schools in Ukraine
  6. Georgia Ministry of Foreign AffairsGeorgia effectively prevents sanctions evasion against Russia – confirm EU, UK, USA

Join EUobserver

EU news that matters

Join us