01 July 2013

Financial World: Brrrr for the BRRD (Graham Bishop article)

The process of deepening economic – and thus political – integration is proceeding apace, though not without some froideur. ECOFIN has supported the Commission’s recommendations for the third, yearly cycle of economic policy coordination. At the same time, an intensified debate on banking union, which is intended to break “the vicious cycle between banks and sovereigns”, in which sovereign indebtedness cripples national banks, is moving into delicate political areas.

On the agreement side, ’Country-Specific Recommendations’ from the Commission for 2013 were approved - covering a wide range of issues, including public finances and structural reforms. Taxation, pensions, public administration, services and the labour market, especially youth unemployment, will all be affected. Thanks to local economic shifts, ECOFIN also terminated excessive deficit procedures for Italy, Latvia, Lithuania, Hungary and Romania, but extended deadlines for Spain, France, the Netherlands, Poland, Portugal and Slovenia to meet reduction targets. Ireland and Portugal saw their loan maturities substantially extended to help them emerge from the programme.

If this sounds like all-round leniency, the council decided that Belgium has yet to deal decisively with its deficit and prescribed corrective medicine. This means that a founder of the EU may be the first to suffer real sanctions on its deficit.

The EU did less well with progress on a banking union. After a long night of wrangling, the finance ministers failed to agree key elements of the Bank Resolution and Recovery Directive (BRRD) – a cornerstone of banking union. As Financial World was going to press, the chances of an eventual agreement hung in the balance.

To continue reading, please click on the link below.

© Financial World