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Commission proposes new ECB powers for banking supervision as part of a banking union
The Commission has proposed a single supervisory mechanism (SSM) for banks in the euro area as a means of strengthening the Economic and Monetary Union (EMU). In the new single mechanism, which was proposed on 12 September, ultimate responsibility for specific supervisory tasks related to the financial stability of all Euro area banks will lie with the European Central Bank (ECB). National supervisors will continue to play an important role in day-to-day supervision and in preparing and implementing ECB decisions. The Commission also proposed that the European Banking Authority (EBA) develop a Single Supervisory Handbook to preserve the integrity of the single market and ensure coherence in banking supervision across all 27 EU countries. The Commission called on the Council and European Parliament to adopt the proposed regulations by the end of 2012.
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This new system, with the European Central Bank at the core and involving national supervisors, will restore confidence in the supervision of all banks in the euro area.
José Manuel Barroso, President of the European Commission |
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State of the Union: Barroso calls for a “Decisive Deal for Europe”
In his State of the Union address to the European Parliament on 12 September, Commission President José Manuel Barroso called for a “Decisive Deal for Europe” that will “stabilise the EMU, boost sustainable growth, and restore competitiveness.” His vision for a new direction encompasses undertaking structural reforms at the national level that have been postponed for decades while completing the Single Market. Barroso said that the Commission will shortly present a Single Market Act II. He also called for a banking union and a fiscal union, noting that economic reform coupled with a genuine economic and monetary union are “the engines to get our boat moving forward”. According to Barroso, this autumn the Commission will publish a blueprint for deepening the economic and monetary union.
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ECB agrees on conditional mechanism to buy euro area sovereign bonds in secondary markets
The European Central Bank (ECB) has decided on a conditional mechanism for buying euro area sovereign bonds in secondary markets. In a nearly unanimous decision announced on 6 September, the ECB Governing Council decided to authorise the modalities for undertaking Outright Monetary Transactions (OMTs). The action is designed to help restore investor confidence in the targeted sovereign bond markets while enhancing the functioning of the monetary transmission mechanism. Intervention will be based on strict policy conditionality attached to an appropriate European Financial Stability Facility or European Stability Mechanism (EFSF/ESM) programme. Such a programme can take the form of a full EFSF/ESM adjustment programme or of a precautionary programme if they include the possibility of EFSF/ESM primary market purchases. Responding to the ECB announcement, Olli Rehn, Vice President of the European Commission, said: “The governments of vulnerable euro area Member States must continue to take determined action for sound public finances and sustainable growth and job creation. The pursuit of these policies will remain the responsibility of the governments concerned.”
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Review mission concludes Portugal’s programme broadly on track
Staff teams from the European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) visited Lisbon during 28 August-11 September for the fifth quarterly review of Portugal’s economic programme. The review confirms that Portugal’s programme is making progress, albeit against strong headwinds. In 2012, real GDP growth remains in line with projections, exports are performing better than expected, and the fast reduction in the external deficit is contributing to alleviating the external financing constraint. Nevertheless, higher unemployment, lower disposable incomes, and a shift in tax bases away from more highly-taxed activities are weighing on revenue collection.
Economic growth is projected to decline by 3 percent in 2012 and remain weak in 2013. The deficit targets were revised upwards, for 2012 to 5 percent, and for 2013 to 4.5 percent to arrive at 2.5 percent in 2014, well below the Stability and Growth Pact threshold of 3 percent. Approval of the conclusion of this review will allow the disbursement of EUR 4.3 billion (EUR 2.8 billion by the EU, and EUR 1.5 billion by the IMF) as early as October. The joint mission for the next programme review is expected to take place in November.
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Troika mission returns to Greece
The Troika went to Athens as soon as the new government was formed and spent most of July and early August there. The Troika then resumed its mission in Greece from 5 September. It continues to assess fiscal measures with the Greek authorities with an eye to ensuring that the target for 2012 is fulfilled and that the fiscal gap over the medium term is closed. The Troika is also assessing developments in the areas of fiscal and structural reforms and will subsequently report its conclusions to the Eurogroup.
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Legal basis adopted: Pilot phase of the Europe 2020 Project Bond Initiative launched
The EU-European Investment Bank (EIB) initiative aims to revive and expand capital market financing of large European infrastructure projects in the fields of transport, energy and information technology. The legal basis for the initiative, Regulation (EC) No. 670/2012, has now been adopted by the European Parliament and the Council and was published in the Official Journal on 31 July 2012. During the pilot phase, which will run until the end of the current multi-annual financial framework in 2013, the EIB will test the project bond concept in practice. A cooperation agreement between the Commission and the EIB is being finalised and EIB staff members are actively screening eligible projects to identify those suitable for project bond financing.
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Rehn welcomes Spain's adoption of banking decree
Olli Rehn, Vice-President of the European Commission, welcomed adoption by the Spanish government of a Royal Decree Law on the restructuring and resolution of credit institutions. In a statement issued on 31 August, Rehn noted that the new law provides the necessary legal basis for a comprehensive restructuring of Spanish financial institutions that are in need of external support, including the effective segregation of impaired assets from bank balances and their transfer into a separate Asset Management Company. Rehn said that the new law “sends an important signal of Spain’s determination to comply fully with the requirements and timeframe set out in the Memorandum of Understanding” that was concluded earlier this year.
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Ruling by constitutional court in Karlsruhe clears way for ESM
Germany's constitutional court in Karlsruhe has ruled that the European Stability Mechanism (ESM) does not violate Germany's constitution. The ruling, announced on 12 September, paves the way for ratification of the ESM Treaty by Germany. The court attached two conditions to its ruling. The ESM Treaty may only be ratified if at the same time it is ensured in international public law that Germany's liability cannot exceed the limit corresponding to Germany's share in the authorised capital stock of the ESM of EUR 190 billion without prior approval from the German parliament, and that the provisions in the ESM Treaty should not stand in the way of providing comprehensive information to the German parliament. It is believed that the implementation of those conditions should not cause any substantial further delays in the ratification process.
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Upcoming: Labour market developments. European Economy 4/2012
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| Directorate-General for Economic and Financial Affairs |
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