Thursday

21st Sep 2017

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.

Thank you for reading EUobserver!

Subscribe now and get 40% off for an annual subscription. Sale ends soon.

  1. €90 per year. Use discount code EUOBS40%
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

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.

EU takes time to ponder tax on tech giants

The EU commission published a paper that outlined several options on how to increase tax income from internet companies' activities, but fell short of proposing legislation.

EU commission changes gear on trade

The EU executive seeks new deals with Australia and New Zealand, while aiming to overhaul the global investment protection system. It also wants to screen foreign investments.

Analysis

Bayer-Monsanto merger could reshape EU food sector

Mega-mergers in the food sector have become commonplace, but EU laws do little to help it keep check on the impact this could have on the environment, public health, and food security.

News in Brief

  1. Le Pen's right-hand man leaves National Front
  2. Spanish PM calls on Catalan leaders to 'stop escalation'
  3. Dutch government to appeal Srebrenica ruling
  4. Verhofstadt: Northern Ireland could stay in single market
  5. Catalan leader decries Spanish government intervention
  6. Hungary set for fresh campaign against public enemy Soros
  7. Iceland's PM leads in polls ahead of October elections
  8. Erdogan demands Iraqi Kurds cancel referendum

Stakeholders' Highlights

  1. Mission of China to the EUGermany Stands Ready to Deepen Cooperation With China
  2. World VisionFirst Ever Young People Consultation to Discuss the Much Needed Peace in Europe
  3. European Jewish CongressGermany First Country to Adopt Working Definition of Antisemitism
  4. EU2017EEFour Tax Initiatives to Modernise the EU's Tax System
  5. Dialogue PlatformResponsibility in Practice: Gulen & Islamic Thought
  6. Counter BalanceHuman Rights Concerns Over EIB Loan to the Trans Anatolian Pipeline Project
  7. Mission of China to the EUChina Leads the Global Clean Energy Transition
  8. CES - Silicones EuropeFrom Baking Moulds to Oven Mitts, Silicones Are a Key Ingredient in Kitchens
  9. Martens CentreFor a New Europeanism: How to Put the Motto "Unity in Diversity" Into Practice
  10. Access MBAGet Ahead With an MBA Degree. Top MBA Event in Brussels
  11. Idealist QuarterlyIdealist Quarterly Event: Building Fearless Democracies With Gerald Hensel
  12. Mission of China to the EUPresident Xi Urges Bigger Global Role for Emerging Economies