A consensus has bene reached between EU finance ministers to make bank regulations stricter which essentially meets a crucial German condition that was given to allow for any larger agreement on reforms in the eurozone.
Berlina and other northern eurozone states had demanded that Europe’s banking system be subjected to more risk reduction regulations and this agreement is a step towards meeting those demand, hailed the ministers hailed. The countries including Germany have demanded that before any further distribution of national responsibilities are done at the EU, banking better regulations must be created.
However, Italy and Greece were absent from the agreed compromise which is a sign that the euro reform talks scheduled for next month would face difficulties. Rome argued that the proposed steps were lopsided and favoured the demands of the creditors’ and “achieved little on risk sharing”.
Under the legislation, EU banks would be allowed to issue the minimum amounts of subordinated debt and other securities to the degree to losses can be absorbed in case the banks do not do well. These moves have been proposed to ensure that any form of banking crisis can be coped up without the need to use taxpayer’s money.
The latest agreement makes the capital rules more stringent which are aimed to make sure that banks are bale to deal with losses on their investments. Before formal adoption, the compromise will be discussed with the European Parliament.
“This is a good package,” said Olaf Scholz, German finance minister. “The cost of bank failures, as a rule, should be borne by shareholders.”
The soon to be sworn in of the new populist government in Italy was the driver that gave impetus and urgency to the negotiations, EU diplomats said. here was apprehension that the newly elected government in Italy would attempt to change the wordings of the deal to suit their poll promises.
“The threat of Italy means we have to get it sewn up,” said one eurozone diplomat after late-night talks between France, Germany, the Netherlands and the European Commission.
For the broader agreement on the reform of the 19-country eurozone, this EU-wide agreement would carry importance, said ministers.
The eurozone ‘safe asset’ is crucial to banking union.
“We expect the EU will make significant progress on risk sharing and we will be able to address other parts of the banking union and road map [in June],” said Maurizio Massari, Italy’s ambassador to the EU, who attended the finance ministers’ meeting.
“Minimum requirement for own funds and eligible liabilities”, or MREL as it is known in the EU – which is the measure of the need for banks to issue subordinated bonds and other loss-absorbing debt, was one of the sticking points in the negotiations.
An agreement for the new targets for banks which are set to come into force in 2024 was reached between Mr Scholz and French finance minister Bruno Le Maire which was also accepted by other governments, diplomats said.
(Adapted from FT.com)