Tuesday

24th Jan 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.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

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 should raise own taxes, says report

A group chaired by former Italian PM and EU commissioner Mario Monti says Brexit should be used to create EU-level levies to depend less on member states contributions, and to abolish member states rebates in the EU budget.

Stakeholders' Highlights

  1. Dialogue PlatformThe Influence of Turkish Politics in Europe After the Coup Attempt
  2. World VisionEU Urged to do Better Ahead of Helsinki Conference on Syria
  3. Caritas EuropaEU States to Join Pope Francis’s Appeal to Care for Migrant Children
  4. UNICEFNumber of Unaccompanied Children Arriving by sea to Italy Doubles in 2016
  5. Nordic Council of Ministers"Nordic Matters" Help Forge Closer Bonds Between the UK and the Nordic Region
  6. Computers, Privacy & Data ProtectionThe age of Intelligent Machines: join the Conference on 25-27 January 2017
  7. Martens CentreNo Better way to Lift Your Monday Blues Than to Gloss Over our Political Cartoons
  8. Dialogue PlatformThe Gulen Movement: An Islamic Response to Terror as a Global Challenge
  9. European Free AllianceMinority Rights and Autonomy are a European Normality
  10. Swedish EnterprisesHow to Create EU Competitiveness Post-Brexit? Seminar on January 24th
  11. European Jewish CongressSchulz to be Awarded the European Medal for Tolerance for his Stand Against Populism
  12. Nordic Council of Ministers"Adventures in Moominland" Kick Off Nordic Matters Festival in London

Latest News

  1. EU says milk protest 'difficult to understand'
  2. Future of euro on EU agenda This WEEK
  3. Pope warns populism could lead to 'saviours' like Hitler
  4. How the EU can protect the world’s forest by tackling corruption
  5. Leftist newcomer takes lead in French Socialist primary
  6. Far-right groups pledge allegiance ahead of elections
  7. Trump pledges US-first foreign policy
  8. GMO opt-out plan remains in waiting room