EU finance ministers failed to reach an agreement on Wednesday (4 December) on the reform of the EU’s bailout fund and move to political discussions about the European Deposit Insurance Scheme ahead of the euro summit next week.
Reforms of the Economic and Monetary Union often die in the details or even before they start. After hours of negotiation, and just before midnight, the Eurogroup broke off without reaching an agreement or any substantial progress before the end of the year.
“We have an agreement in principle for the reform of the ESM (European Stability Mechanism) that it is not final,” Eurogroup President Mario Centeno told the press. But in Brussels, nothing is agreed until everything is agreed.
In June, the Eurogroup had a ‘broad agreement’, now it has an ‘agreement in principle.’ Some legal issues have been finalised ever since but Centeno was unable to explain what the deal was in practice, beyond the fact that member states couldn’t give their blessing to the text just yet.
The political turmoil in Italy, where the reform of the European Stability Mechanism has become a source of heated political debate, has made it impossible to move forward before the summit. “There are national debates and procedures ongoing,” Centeno conceded.
The compromise reached just before midnight, however, “would help cope with the debate in Italy and other member states”, the Eurogroup president said.
“For the ESM reform to become legally effective, every parliament of the euro area needs to agree. The Italian Parliament will have the opportunity to have a look at the details and a final vote,” Klaus Regling, ESM managing director, pointed out.
The outstanding issues are precisely those that have caused more troubles in Rome. In particular, the Collective Action Clauses, which allow modifying the terms of sovereign bonds.
With the revision of the ESM Treaty, this would be possible with a simple rather than a double majority, making it easier to carry out debt restructuring. Italy, with a debt rate of 138% GDP, considers this would jeopardise its position in the financial markets.
The text agreed in June will not be modified but finance ministers were willing to provide some clarification and explain that the application of the CACs is not a “one-size-fits-all” clause but there are provisions and conditions to their application.
What remains to be discussed is whether these clauses are part of the backbone of the treaty or they can be just an annexe, which remains critical for the ratification process in certain countries.
Other more controversial points in principle, such as the backstop for the Single Resolution Fund, which was established for resolving failing banks, were agreed. This safety net would have an estimated size of €68 billion in the end, Regling announced.
“Our main goal is to make the EMU more robust and resilient,” he added, praising the importance of this provisional agreement.
No agreement on EDIS
The ESM reform deadlock was not the only one on the Eurogroup’s agenda. EU finance ministers failed to move forward on the creation of the European Deposit Insurance Scheme (EDIS), an important pillar of the Banking Union pending since 2015.
The idea was for the Eurogroup to put in motion a roadmap to beef up the political discussion. However, the ministers sent back the file to the technical level, given the important divergences among member states’ positions.
“We did not endorse a roadmap for EDIS,” Centeno confirmed, “it is not the political moment.” Nevertheless, the Eurogroup president showed hope that the political cycle starting now would give a new push to the debate.
Expectations were raised in October when German Finance minister Olaf Scholz published an opinion piece expressing his willingness to get to the negotiating table on EDIS.
But this political impetus was not enough either for the negotiation or for Scholz himself, who went on to lose the battle for the leadership of his party, the SPD.
“It is very relevant that a couple of years ago, this door appeared to be closed. Now it has been reopened,” said Paolo Gentiloni, Commissioner for Economy, after his first Eurogroup. However, he admitted that the debate showed how important are the outstanding differences among member states on the matter.
The instrument is therefore back on ‘life support’, in spite of the repeated calls from the European Commission and the European Central Bank to strengthen the Banking Union before a crisis erupts.