Eurozone policymakers may be forgiven for feeling that they have their hands full fighting a record-breaking economic contraction and unprecedented health crisis. Alongside this challenge, they also have a mountain of unfinished business when it comes to building the single currency.
One of the most glaring examples is the long-awaited legal revision of the bloc’s bailout fund, the European Stability Mechanism and the closely related task of providing the region’s banking union with additional funding.
Finance ministers agreed in 2018 on a major overhaul of the current system, which would include a revised ESM treaty and the creation of a common backstop for the region’s single resolution fund that manages contested banks. It was a tedious and painful task getting the deal over the line and putting it into law.
Paschal Donohoe, President of the Eurogroup of Finance Ministers, wants to make this process a reality and use an upcoming meeting of the Eurogroup next Monday to finally get closer to a deal.
The ESM was set up during the sovereign debt crisis to help the affected governments. The proposed treaty reform, which needs to be ratified in the national parliaments, would give it additional flexibility.
There is also the SRF, a pot of money that has existed since 2016 and builds up cash from a levy on the banking system to cover the costs of processing failing lenders. This is supported by an ESM backstop for the fund – emergency money should it ever run out of money. The hope is to introduce this backstop two years before the target date of 2024.
In order to agree to the early introduction of the backstop, northern hawks like the Netherlands, Germany and Finland want to ensure that the southern member states have made sufficient efforts to reduce risk and tackle bad credit in their banking systems. This is doubly sensitive as the euro area is aiming for a 7.8 percent decline in 2020 and officials are preparing for a new set of bad loans next year.
In the meantime, the Italian government must be ready to embark on the politically uncomfortable process of ratifying the revised ESM treaty – a sensitive issue in a country where the mere mention of the ESM ridicules Matteo Salvini’s populist party.
With elections coming up next year in countries like the Netherlands and Germany, there are strong arguments for pushing through this process as soon as possible. Urgency is not just political, however: if the eurozone is to get to grips with the unfinished business of completing the banking union, it must prove it can handle relatively low hanging fruits.
Chart du Jour: The Mythical Lockdown Compromise
Martin Wolf takes a look at the lessons the world can learn from the pandemic. One of the great things about it is that the economy doesn’t have to suffer to save lives. An analysis by the Institute for New Economic Thought measures the deaths per million from Covid-19 versus total economic loss compared to 2019. The results show that countries like Sweden, which has kept its economies open, have a higher and only marginal death rate showed less economic damage compared to countries like Austria, which closed quickly.
Summary of the Europa News
Political ads on social media could face new rules according to a draft plan by the European Commission that the FT saw. The rules are designed to prevent websites displaying political ads from making money and forcing social media platforms to warn users about content when it becomes popular. The commission is also examining fines for foreign agents who spread disinformation.
The commission was recognized on Wednesday by the union’s independent ombudsman for awarding high-quality sustainability advisory work to BlackRock without considering the company’s conflicts of interest. BlackRock’s contract to advise the EU on sustainability in banking was criticized earlier this year by MPs, who pointed out that the company’s investments in European banks and fossil fuels hampered its ability to provide impartial advice. (FT)
Days after he announced his resignation as party leader over an anti-Semitism scandal, Thierry Baudet of the Dutch Populist Forum for Democracy (FvD) said he would run as a candidate for an upcoming leadership competition. It has caused even more consternation in the already divided ranks of the Party (NOS). Cas Mudde collapses, why the party’s implosion is good news for far-right Geert Wilders.
As Brexit approaches, Ursula von der Leyen has described the remaining 37 days to forge a trade deal as “crucial” and told MPs that there are still problems “that make the difference between doing business and no business can”. British truckers got a taste of a no-deal Brexit on Tuesday when French police checked immigration papers in the Eurotunnel, as would be expected without a deal. The extra step led to a five mile line of trucks in Kent. (FT / NYT)
Russia’s influence in its close neighborhood could be due to the decline, argues Nicolae Reutoi in foreign policy. Citizens in countries like Moldova and Belarus have turned down Russia-backed candidates for more liberal decisions. Russia will always be a major player in these countries, but the days of Moscow selecting leaders in allies abroad are numbered.
Come on Thursday
The European Parliament is holding its final voting session on various resolutions, including human rights in Belarus, abortion rights in Poland and the EU’s trade policy review.