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European Parliament and Council back Commission's SRM proposal: a major step towards completing the banking union
The European Parliament and the Council have reached a provisional agreement on the Commission proposal for a Single Resolution Mechanism (SRM), one of the two major building blocks of the EU’s banking union. It complements the Single Supervisory Mechanism (SSM) that will see the European Central Bank (ECB) take ultimate responsibility for the supervision of banks in the euro area and in other EU Member States that decide to join the banking union. The agreement on the SRM reached on 20 March compresses the time that failing banks supervised by the SSM can be resolved to as little as a weekend, before financial markets open again. Built around a strong SRM Board, it also reduces the potential for political interference in individual resolution cases, as the Council will only become involved under specific, clearly defined circumstances. Otherwise, a silence procedure will apply. A Single Resolution Fund (SRF) with a target level of at least 1% of covered deposits across all participating Member States (minimum of EUR 55 billion) will be created within a period of eight years and rapidly mutualised in order to spread responsibility more broadly across all Member States, with 60% of the fund to be mutualised already in the first two years of the Fund’s existence. If approved by the European Parliament and the Council later this spring, the SRM would enter into force on 1 January 2015, while the SRF would apply from 1 January 2016.
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| Political agreement on the single resolution mechanism completes our banking union. This will strengthen confidence and stability in the financial markets and help restore lending to the economy. |
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Manuel Barroso, President of the European Commission
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Greece’s 4th review mission concludes programme broadly on track and economy poised for growth
Staff teams from the European Commission, European Central Bank, and International Monetary Fund (IMF) concluded their review mission to Greece on 19 March. The teams reached staff-level agreement with the authorities on policies and agreed that the economy is beginning to stabilise and is poised for a gradual resumption of growth. Fiscal performance is on track to meet programme targets and the authorities are making progress on structural reforms. Moreover, they are committed to implementing a majority of the product market reforms identified in a recent OECD study, to liberalising markets and to reducing social security contribution rates and nuisance taxes. Notwithstanding delays, progress is also being made in reforms of the public sector. Alongside these and other structural reforms, the authorities continue their efforts to strengthen the social safety net. The Eurogroup and the IMF’s Executive Board are expected to consider approval of the review in the coming weeks.
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Ukraine: Commission proposes a further EUR 1 billion in macro-financial assistance
The European Commission on 19 March proposed new macro-financial assistance (MFA) for Ukraine of up to EUR 1 billion in medium-term loans. The new MFA programme, which is likely to be approved by the EU’s Council of Ministers in the coming weeks, is part of the package of support to Ukraine announced by the European Commission on 5 March and endorsed by the European Council on 6 March. The proposed MFA is designed to help Ukraine cover part of its urgent external financing needs. Disbursement of the assistance would be conditional on the successful implementation of a financing arrangement that the Ukrainian authorities are expected to conclude with the IMF and on specific economic policy conditions that the Commission and the Government of Ukraine will agree upon in the coming weeks. The proposed EUR 1 billion programme would be implemented in parallel with the existing programme of EUR 610 million, which has been available since 2010 but has not yet been released. The first tranches of assistance from the EU, EUR 100 million from the existing MFA and EUR 500 million from the new MFA, should be ready to be disbursed as soon as agreement is reached on an IMF programme for Ukraine.
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Jordan: EU signs EUR 180 million macro-financial assistance package
On 18 March, Olli Rehn, Vice-President of the European Commission responsible for Economic and Monetary Affairs and the Euro, signed, on behalf of the European Union, a EUR 180 million Macro-Financial Assistance (MFA) package for Jordan. The MFA package includes a Memorandum of Understanding and Loan Facility Agreement. The agreement was co-signed by the Jordanian Minister of Finance, Dr Umayya Toukan, and by the Governor of the Central Bank of Jordan, Dr. Ziad Fariz. The financial assistance, in the form of a medium-term loan, will be provided during the course of this year in two instalments of EUR 100 and EUR 80 million. The assistance is part of the EU’s comprehensive efforts to help Jordan address the consequences of external economic shocks, particularly those related to the conflict in Syria and the disruption in gas imports from Egypt. These factors have contributed to significant imbalances in Jordan's balance of payments and fiscal situation.
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EU issues EUR 2.6 billion 10-year bond for Ireland and Portugal
The European Union issued a EUR 2.6 billion 10-year benchmark bond on 18 March. The proceeds will be lent onwards to Ireland, which will receive EUR 0.8 billion, and to Portugal, which will receive EUR 1.8 billion, as part of their financial assistance programmes. The bond issue was organised by the European Commission on behalf of the EU under the European Financial Stabilisation Mechanism (EFSM). The resulting interest rate (1.875%) is the lowest ever achieved by the European Commission. For Ireland, it is the last EFSM disbursement under the financial assistance programme that successfully concluded last December. For Portugal, only one further disbursement is now outstanding. Market access at favourable conditions has recently been confirmed for both countries. This 10-year bond is the first of two EFSM funding transactions planned for 2014, following an absence from the market since 2012. The expected funding plan for the rest of 2014 includes EUR 2.1 billion for the EFSM loan to Portugal and up to EUR 2 billion under the macro-financial assistance (MFA) programme, including funding for loans to Ukraine.
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Commission adopts measures to promote crowdfunding and other long-term financing for European economy
The European Commission adopted a package of measures on 27 March that is designed to stimulate new ways of financing Europe’s long-term investment needs. Investment needs for transport, energy and telecom infrastructure alone are estimated at EUR 1 trillion for the period up to 2020. Moreover, significant investment will also be needed in human capital and R&D, new technologies and innovation under the Europe 2020 strategy and the 2030 climate and energy package. The proposed measures include mobilising private sources of long-term financing such as occupational pension funds, making better use of public funding such as national export credit schemes, facilitating SMEs’ access to capital markets and to larger investment pools, and attracting private finance to infrastructure. The Commission has also proposed a number of actions aimed at promoting and building confidence in crowdfunding, an emerging alternative form of financing – usually through the internet – that directly connects those who can give, lend or invest money with those who need financing for a specific project.
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Commission adopts nine Regulatory Technical Standards to implement the single rulebook in banking
On 13 March, the European Commission adopted a package of Regulatory Technical Standards (RTS) needed to implement important provisions of the Capital Requirements Regulation and Directive (CRR/CRD). The CRR/CRD legislation transposes the global Basel standards on bank capital into EU law. The nine RTS define the ways in which competent authorities and market participants must handle disclosures linked to securitisation instruments and measure potential losses from derivative positions and counterparty failure. They also specify the types of financial instruments that can be used for paying bonuses. The standards, which were developed by the European Banking Authority (EBA), draw upon the experience of Member State banking supervisors as well as the results of stakeholder consultations. Absent any objections or extensions by the European Parliament or the Council, the RTS are expected to enter into force later this spring.
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Troika: European Parliament calls for establishment of a permanent ‘European Monetary Fund’
The European Parliament backed two resolutions on 13 March concluding its inquiry into the role of the Troika of international lenders – the European Commission, the European Central Bank and the International Monetary Fund (IMF) – during the recent economic and financial crisis. The resolutions praised the role of the Troika in helping avoid further deterioration of the economic situation but called for the creation, in the medium term, of a more permanent mechanism – a European Monetary Fund – for dealing with similar situations in the future. According to parliamentarians, such a fund would be more transparent and democratically accountable than the current institutional setup, and it could also incorporate input from social partners. In the proposed fund, the ECB would have observer status, while the IMF’s participation would be optional. MEPs would like to see this new body enshrined in EU law.
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German Federal Constitutional Court rejects all constitutional claims against ESM
Germany’s Federal Constitutional Court has definitively rejected all constitutional complaints against the European Stability Mechanism (ESM), the Fiscal Compact, the Six Pack (forming part of the reformed EU economic governance), and related German implementing legislation. The latest ruling of 18 March rejects all constitutional complaints as partially inadmissible and in any event unfounded. Based on its preliminary ruling of September 2012, the court has now fully and unanimously endorsed the treaty establishing the ESM. The German government can therefore continue to participate fully in the fund. The court also found that despite the liabilities assumed, the budgetary autonomy of the German Bundestag is sufficiently safeguarded. However, arrangements under budgetary law must be made to ensure that possible capital calls pursuant to the ESM Treaty can be met fully and in time within agreed upper limits. This would obviate any suspension of Germany’s voting rights in the ESM bodies. The European Central Bank’s Outright Monetary Transactions programme is no longer part of the decision on the constitutional complaints, as this aspect was referred for a preliminary ruling to the European Court of Justice on 7 February 2014.
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Private Banking: Luxembourg's next growth engine? Country Focus 2/2014
This Country Focus analyses the role and place of private banking in the financial sector and the economy of Luxembourg. The financial sector has been the main driver of economic performance in Luxembourg over the last three decades. While the phasing-in of the automatic exchange of information will weigh on private banking, the extent of the impact of the new regulatory environment is still unclear. Moreover, the refocusing phase that private banking is going through combined with its “first mover” strategy in targeting the family office niche and positioning itself as a provider of sophisticated services to complex clients have the potential to yield future growth. In fact, the Country Focus argues that private banking has high growth potential in Luxembourg and that with the right measures it can overcome the effects of a challenging regulatory environment.
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| Directorate-General for Economic and Financial Affairs |
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