Sunday

25th Jun 2017

Spain may speed up EU 'banking union'

  • EU politicians have been making increasingly gloomy statements about the eurozone (Photo: David Dennis)

The US has joined ranks with EU officials exploring ways to pump eurozone money directly into Spain's troubled banks instead of having to further burden the state budget.

"We were talking about the possibility that the banks, not only Spain's but also in other countries who need it, could access funds directly without intervention from the governments and without conditions," said Spanish deputy PM Soraya Saenz de Santamaria after meeting US finance minister Timothy Geithner in Washington on Thursday (31 May).

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"The treasury secretary indicated that we are working in the same direction and that we must find a solution for the banks," she added.

Meanwhile, an International Monetary Fund official at a conference in Brussels on Thursday also pressed for "decisive steps" in what is now generically being called a "banking union."

"Such steps would involve providing banking support from a common resource pool independent from national sources, sooner rather than later," IMF deputy chief Nemat Shafik said, a month before an EU summit where leaders are set to discuss the way forward for the eurozone, including the possibility of a banking union.

European Central Bank (ECB) chief Mario Draghi, one of the architects of the eurozone plan, on Thursday told EU parliamentarians in Brussels that the euro set-up in its current form was "unsustainable."

"The next step ... is to clarify what is the vision a certain number of years from now. The sooner this is specified, the better it is."

In Draghi's view, a banking union would need to be supervised centrally, guarantee deposits for the banks' customers and set up a joint bail-out fund banks would contribute to.

Draghi also criticised the handling of Bankia, a major Spanish bank bailed-out by the state, whose total bill is still unclear after having been revised several times.

"There is a first assessment, then a second, a third, a fourth,” Draghi said. "This is the worst possible way of doing things. Everyone ends up doing the right thing, but at the highest cost."

A similar sense of urgency in reforming the eurozone architecture was given by Italy's central bank governor, Ignazio Visco, who that same day in Rome said: "There are now growing doubts among international investors about governments' cohesion in guiding the reform of European governance and even their ability to ensure the survival of the single currency."

Italy, as well as Spain, has seen its borrowing costs rise not only due to national economic problems, but also due to market fears that Greece may leave the eurozone.

Italian Prime Minister Mario Monti on Thursday urged Germany to reconsider its opposition to having common defences in order to shield Italy and Spain from contagion, while EU economics commissioner Olli Rehn called for "a much upgraded common capacity to contain common contagion."

Germany's fears of increased inflation were undermined by the latest eurozone statistics, which showed that inflation decreased to 2.4 percent in May from 2.6 percent in April on average in the euro area.

In Germany, inflation fell even more - to 1.9 percent in May compared to 2.1 percent the month before. The ECB's target is to keep inflation around 2 percent.

Agenda

This WEEK in the European Union

Proposals for a banking union and the return of Russia's Vladimir Putin to high office will dominate next week's EU agenda.

Brussels: 'Banks should pay for banks'

The EU commission has unveiled proposals to change the too-big-to-fail rationale that has seen billions of euros of public money pumped into ailing banks.

Focus

EU and China move to fill US void

At a summit in Brussels, EU and Chinese leaders will attempt to deepen ties on trade and climate as US president Trump plans to pull out of the Paris climate deal.

Italy reaches EU deal on failing bank

After months of negotiations, the European Commission and Italy agreed on the terms of rescue for Monte dei Paschi di Siena bank, including job cuts, salary caps and private sector involvement in the bailout.

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