On Friday 25th of May, European Union finance ministers held a meeting in Brussels and after late-night discussions they agreed on a package to reduce risks in the banking system, clearing the way for EU leaders for long awaited reforms of the eurozone.
What did they agree on ?
The package of various technical measures is a risk-reduction plan. It is opposed to risk-sharing, which is the part of a eurozone reform that would strengthen common instruments to help countries in case of crisis. Several EU countries led by Germany demanded first to increase the eurozone’s risk-reduction capacities before discussing and possibly adopting reform plans, in particular those proposed by Emmanuel Macron.
French finance minister Bruno Le Maire said after the meeting that it is “a good, strong and fair package and will make the European banking sector strongest in the world”.
Addressing German public opinion concerns, he reassured that the measures would “reduce the chance that taxpayers or guarantee schemes will ever need to step in. It’s good for savers. It paves the way to deepening the economic and monetary union. It’s the political momentum we needed.”
The French and German ministers held long discussions over the last week in order to come up with a compromise that would be endorsed by their counterparts in other EU countries and to unblock wider discussions over the whole reform of the eurozone. And finally they made it – The compromise was endorsed by all countries except Italy, whose government is in its final days, and Greece.
Macron and Merkel had first promised the proposal for March, but delayed it to June as German talks to form an new Government took longer than expected. But now they are able to deliver.
What’s next for the eurozone?
“Anyone who is waiting for the next step can be absolutely sure that it will take place. As we already announced, we think it should be successful before summer,” German finance minister Scholz said on Friday.
The next step will be the creation of common backstop to save failing banks through the European Stability Mechanism, the eurozone’s emergency fund. The agreement will also help to start talks over a European deposit insurance scheme. Germany has been blocking this step until now, for fear of being obliged to give money to save other countries’ financial systems.
The new rules now need to be agreed by the European Parliament and in future euro-zone banks would then have to apply international standards on prudential requirements and a common EU process for recovery and resolution in case of crisis.
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