29th Nov 2022

EU should press ahead on bank resolution, ECB man says

  • The ECB is open to a further interest rate cut (Photo: Valentina Pop)

The EU should move ahead with rules to wind up failing banks and set up a bank-funded resolution fund, European Central Bank (ECB) vice-president Vitor Constancio has said.

In a hearing with MEPs in the Parliament's economic affairs committee on Wednesday (24 April), Constancio noted that a single resolution mechanism to wind up banks is "a necessary complement" to having a single banking supervisor.

Read and decide

Join EUobserver today

Become an expert on Europe

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

... or subscribe as a group

MEPs are expected to open negotiations with governments on the bank recovery and resolution directive in the coming weeks.

The legislation puts in place a hierarchy of savers and investors who would be expected to cover losses in the event of a Cyprus-style bank collapse.

Describing the adoption of the directive as being "of paramount importance," Constancio said it would provide "a clear tool-kit of powers and instruments in all member states."

Constancio was presenting the Frankfurt-based ECB's 2012 annual report, a year which saw the EU's GDP shrink by 0.6 percent and in which unemployment soared to "unprecedented levels."

Referring to ECB President Mario Draghi's pledge to do whatever it takes to prop up the single currency, Constancio said the promise had made a "huge impact on interest rates … and a market reduction in sovereign bond yields."

Launched in August, the ECB's Outright Monetary Transactions (OMT) programme has seen the bank buy large quantities of eurozone sovereign debt on the secondary bond markets,

He also left the door ajar for a possible interest rate cut, saying that the ECB "stood ready to act in any way it could, especially if the situation deteriorates."

The ECB has pegged interest rates at the historical low of 0.75 percent since July 2012. But with data published on Tuesday indicating a further reduction in manufacturing output, the bank is under pressure to loosen rates further at the next meeting of its governing council next week.

The ECB vice-president also distanced himself from recent comments by European Commission chief Jose Manuel Barroso implying that austerity policies had reached their limits and that governments could shift policy away from deficit reduction.

Reform programmes had "implied high costs in terms of unemployed net and should not be put into risk of unraveling now," he said.

Challenged by Portuguese MEP Elisa Ferreira, the Socialist group spokesperson's on the economic committee, Constancio said that "moving away from debt sustainability would lead to higher interest rates."

But he qualified the statement by adding that "we can talk about the speed but not the direction."

MEPs demand ECB transparency in bank union talks

EU officials are expecting to sketch out a deal within the coming weeks on two regulations that will govern the single supervisory mechanism co-ordinated by the European Central Bank.

ECB steps in, vows help 'as long as needed'

The ECB has lowered its key interest rate to a record low and vowed to take more action "if necessary," in a move aimed at alleviating recession and unemployment in the eurozone.

ECB says more rate hikes to come

European Central Bank president Christine Lagarde said more rate hikes will come, but also admitted a recession will not lower inflation — leaving some economist question the logic of the policy.

Stakeholders' Highlights

  1. Nordic Council of MinistersCOP27: Food systems transformation for climate action
  2. Nordic Council of MinistersThe Nordic Region and the African Union urge the COP27 to talk about gender equality
  3. International Sustainable Finance CentreJoin CEE Sustainable Finance Summit, 15 – 19 May 2023, high-level event for finance & business
  4. Friedrich Naumann Foundation European DialogueGender x Geopolitics: Shaping an Inclusive Foreign Security Policy for Europe
  5. Obama FoundationThe Obama Foundation Opens Applications for its Leaders Program in Europe
  6. EFBWW – EFBH – FETBBA lot more needs to be done to better protect construction workers from asbestos

Latest News

  1. Legal scholars: Prosecuting Putin 'legally problematic'
  2. A missed opportunity in Kazakhstan
  3. EU's Hungary funds, China, energy, and Frontex This WEEK
  4. Sweden says 'no' to EU asylum relocation pledges
  5. The 'proof' problem with EU sanctions — and how to fix it
  6. The EU gas cap: will the bottle ever be 'uncorked'?
  7. Enough talk, only rights can eliminate patriarchal violence
  8. Swedish EU presidency: 'Ukraine, Ukraine, Ukraine'

Join EUobserver

Support quality EU news

Join us