We didn't just talk about migrants (however without reaching a full understanding) at the European summit in Brussels last Thursday and Friday: the heads of state of the Eurozone in fact also spoke of banks, giving the go-ahead for the financial parachute (backstop) of the Bank Resolution Fund and reaching agreement for “a roadmap to begin political negotiations on the single deposit guarantee scheme”. Ultimately, this is the only concrete and official conclusion (in line with forecasts, however) of the Eurosummit on the reform of the monetary union.
The backstop, according to what Eurogroup president Mario Centeno also confirmed, will be "fully operational" before the end of the transition period in 2024 "if sufficient progress is achieved in risk reduction measures". In 2020, the institutions and authorities involved will have to pronounce themselves "on the basis of compliance with the Mrel capital requirement (the amount of own funds and eligible liabilities expressed as a percentage of total liabilities and own funds) and the trend in the reduction of bank bad loans . No state will be barred from accessing the backstop“. Another indication from the Eurogroup, sanctioned at the last meeting in Luxembourg, is the continuous reduction of 'non-performing loans': this is the basic condition for further progress in completing the banking union.
In this regard, the ministers agreed on the use of six indicators on which to base the assessment: capital ratio, leverage effect, liquidity coverage, the 'net stable funding ratio' (ratio between the available amount of stable funding and the mandatory amount of stable funding), the non-performing loans/total loans ratio, the Mrel. On the banks' exposure to national sovereign debt and "on the usefulness of including additional indicators, visions diverge substantially". Italy does not want limits (moreover, a decision at a global level would be necessary, i.e. from the Basel Committee which was unable to decide after months of technical negotiations). Centeno's letter referred to by Eurozone leaders (who cite the Franco-German reform proposal) did not cite Berlin and Paris' indications of set objectives for the level of non-performing loans judged to be optimal: 5% gross, 2,5% net. Italy is around 11% gross. Economy Minister Tria had already indicated in Luxembourg the government's opposition to defining targets.
Returning to the Brussels summit of the last two days, there was also a tough discussion on the role of the European Stability Mechanism (ESM): Italy requested and obtained a passage of the final declaration to be corrected which took its strengthening for granted on the basis of what was defined by the finance ministers of the Eurogroup. Specifically, the question raised by Prime Minister Giuseppe Conte concerns the latest draft of conclusions of the Eurosummit, where it was written: "The ESM will be strengthened, on the basis of all the elements of a reform of the European Stability Mechanism indicated in the letter from the President Eurogroup, including the common financial parachute of the Single Resolution Fund. The Eurogroup will prepare the terms of reference for the 'backstop' and agree a program for further developments of the ESM by December 2018”.
A wording that Prime Minister Conte believed already contained an excessively fixed outline of future discussions. The new wording, after a good half hour of negotiation with lots of references to the exact meaning of the terms used, came out as follows: "The ESM will provide the common 'backstop' to the Single Resolution Fund and will be strengthened by working on the basis of all the elements of an ESM reform as defined in the letter from the president of the Eurogroup”'. The term that according to Conte makes the difference is that reference to the 'work' that still needs to be done on the basis of what has already been discussed by the finance ministers. It seems more a point of principle than anything else: the substance remains that on the role of the ESM the positions between the governments remain distant.
Eurozone leaders have also indicated that the Ecofin agreement on the 'banking package' it will have to allow legislators to adopt it by the end of the year while preserving the current balance. The indication that negotiations on the single deposit guarantee scheme can begin is a positive fact, but there are no commitments on the time target. In reality there is divergence on the assessment of the level of reduction of banking risks (essentially the reduction of non-performing loans) necessary in order to then share them. Nobody thinks that it will be possible to have an agreement in the short term.
On the reform of the Eurozone, the leaders instead limited themselves to indicating that the Eurogroup will further discuss all the issues mentioned in President Centeno's letter to the EU Council. The issue of the Eurozone budget, the workhorse of Macron, Italy (previous government) and the Commission as well as the southern front, is not even mentioned. It is true that Merkel has recently taken sides in favor (so much so that she has supported a joint document with Macron), however there is a difference between France and Germany on the amount of resources available.
In any case, Prime Minister Conte is satisfied: “There was a very lively discussion on the banking and monetary union and at one point I blocked the approval of the document, it's true: Italy didn't like it. After a pause and a long negotiation we managed to unlock the text, which now suits us very well”. In particular, explained the Prime Minister at the press conference, Italy appreciates "the establishment of the common backstop, a security mechanism for sharing risk in the banking system which will also give our banks the possibility, but the banks of all countries to access a common guarantee fund”.
