Monday

25th Mar 2019

Italy and Spain get 'breakthrough' deal on bailout funds

Eurozone leaders in the early hours of Friday morning (29 June) agreed to allow bailout funds to recapitalise banks directly and to buy bonds for "well-behaving" countries - states which are pursuing reforms but suffering from market pressure.

The deal is designed to help Spain and Italy to lower their borrowing costs, but might take several months to implement.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

"We agreed on something new, which is a breakthrough, that banks can be directly recapitalised in certain circumstances... and we are opening the possibility for well-behaving countries to use the EFSF/ESM [bailout funds] to reassure markets and get some stability around their sovereign bonds," EU council chief Herman Van Rompuy said in a press conference at the end of the marathon meeting.

Italy and Spain had earlier filibustered a non-controversial EU "growth pact" worth €130 billion in order to achieve concessions on their immediate concerns: their high borrowing costs.

Germany insisted that the concessions only be made if proper controls are in place, however.

Spain got its long-standing demand of letting banks be directly recapitalised by the eurozone bailout funds, but only once "an effective single supervisory mechanism is established, involving the European Central Bank."

This "will not happen in a few days or weeks, but in the medium term it will achieve the desired effect," said Thomas Wieser, head of the Eurogroup working group of finance ministry officials in the eurozone.

He explained that Spain will have to abide by the current rules for now, which adds the upcoming €100 billion bailout for its banks onto government debt.

Once the new supervisory body is established, the bailout will be "transferred to the new mechanism, so that it can rapidly be taken off Spain's balance sheet," Wieser said.

Madrid also got a concession on the so-called preferred creditor status for the permanent eurozone bailout fund.

Euro leaders decided that the bailout for the Spanish banks will not have such "seniority" - meaning that the permanent European Stability Mechanism will not have any priority compared to other investors in case of default.

For his part, Italian Prime Minister Mario Monti also made some headway in his call for a "semi-automatic" mechanism so that the bailout funds buy government bonds when countries are under market pressure, but without trigerring a bailout procedure, as the rules currently stipulate.

Speaking on his way out of the summit, he said he was pleased the impasse had been overcome.

"There were a lot of discussions, some tension, but we made progress. At our request, we obtained a stabilisation mechanism for countries that are perfoming well under the Stability and Growth Pact, but are still under market pressure, like Italy," he said.

Under this new mechanism, countries would sign a memorandum of understanding about continuing the reforms they are already implementing, but "there would be no troika," Monti explained, in reference to the special monitors from the EU, the International Monetary Fund and the European Central Bank that go every three months to bailed-out countries such as Greece or Portugal.

Van Rompuy also confirmed that the conditions attached to this "flexible" mechanism would reproduce the requirements of the eurozone's beefed up economic surveillance - on budget deficits and macro-economic imbalances.

"There may be just a timeline added to the memorandum, to put some pressure, but the requirements would be the same as the country-specific recommendations," he said, in reference to EU commission-issued reports for each country on where their economy stands compared to the EU rules.

As for the long-term plan for the eurozone, the EU council chief will go back to the drawing board together with the heads of other EU institutions and come back with a "specific timelined roadmap" by October on the banking union, on more sovereignty being ceded to Brussels and on seeking ways to increase "democratic legitimacy and accountability."

Unlike his first report discussed that night and for which there was "no agreement" on substance - Germany opposed the perspective of mutualised debt - the next one will be done "in close co-operation" with member states and also in consultation with the European Parliament, he said.

Merkel faces coalition troubles over euro-bailouts

Bavaria's conservative leader Horst Seehofer has threatened to withdraw support for German Chancellor Angela Merkel's coalition if more concessions are made to ailing euro-countries. He also ruled out changes to the constitution.

Italy debt rating downgraded

US ratings agency Moody's has cut Italy's debt rating by two notches citing a contagion risk from Spain and Greece as the eurozone crisis continues to rage.

Eurozone hawks deal blow to bank bailout plans

EU officials are in damage control mode after Germany, Finland and the Netherlands said the eurozone's new bailout fund should not take on old debt from bad banks.

News in Brief

  1. EU leaders at summit demand more effort on disinformation
  2. Report: Corbyn to meet May on Monday for Brexit talks
  3. Petition against Brexit attracts 2.4m signatures
  4. Study: Brexit to cost EU citizens up to €40bn annually
  5. NGOs demand France halt Saudi arm sales
  6. Report: Germany against EU net-zero emissions target
  7. Former top EU official takes job at law firm
  8. Draft text of EU summit has Brexit extension until 22 May

Feature

Romania enlists priests to promote euro switchover plan

Romania is due to join the single currency in 2024 - despite currently only meeting one of the four criteria. Now the government in Bucharest is enlisting an unlikely ally to promote the euro to the public: the clergy.

Trump and Kurz: not best friends, after all

The visit of Austrian chancellor Sebastian Kurz to the White House on Wednesday showed that the current rift in transatlantic relations is deepening by the day.

Stakeholders' Highlights

  1. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  2. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  3. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  4. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  5. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year
  6. Nordic Council of MinistersNordic commitment to driving global gender equality
  7. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan
  8. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  9. Nordic Council of MinistersNordic talks on parental leave at the UN
  10. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  11. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  12. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID

Latest News

  1. Italy takes China's new Silk Road to the heart of Europe
  2. What EU leaders agreed on climate - and what they mean
  3. Copyright and (another) new Brexit vote This WEEK
  4. EU avoids Brexit crash, sets new date for 12 April
  5. Campaigning commissioners blur the lines
  6. Slovakia puts squeeze on free press ahead of election
  7. EPP suspends Orban's Fidesz party
  8. Macron is confusing rigidity with strength

Stakeholders' Highlights

  1. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership
  2. Intercultural Dialogue PlatformRoundtable: Muslim Heresy and the Politics of Human Rights, Dr. Matthew J. Nelson
  3. Platform for Peace and JusticeTurkey suffering from the lack of the rule of law
  4. UNESDASoft Drinks Europe welcomes Tim Brett as its new president
  5. Nordic Council of MinistersNordic ministers take the lead in combatting climate change
  6. Counter BalanceEuropean Parliament takes incoherent steps on climate in future EU investments
  7. International Partnership For Human RightsKyrgyz authorities have to immediately release human rights defender Azimjon Askarov
  8. Nordic Council of MinistersSeminar on disability and user involvement
  9. Nordic Council of MinistersInternational appetite for Nordic food policies
  10. Nordic Council of MinistersNew Nordic Innovation House in Hong Kong
  11. Nordic Council of MinistersNordic Region has chance to become world leader when it comes to start-ups
  12. Nordic Council of MinistersTheresa May: “We will not be turning our backs on the Nordic region”

Join EUobserver

Support quality EU news

Join us