The political equivalent of a company’s 'offsite' weekend sounds good but the increasing role of Europe in national economies and financial markets means that media attention is now focused on every utterance. Informality has gone – except for the absence of formal minutes! As Eurogroup Chairman Dijsselbloem put it, on the key issues around Banking Union, “cannon shots were exchanged but there was no debate on the solutions”.
Nonetheless, some progress did seem to be made amidst the cannon balls, as Commissioner Barnier agreed that the Single Resolution Mechanism (SRM) could be limited to significant cross-border banks. Germany seemed to be sending smoke signals that some form of single resolution authority could evolve quite quickly – though the time delay would mean such discussions could only occur after the German elections.
However, the most significant smoke signals for the UK were the suggestions that the European Stability Mechanism (ESM) could be revised to permit it to fund non-euro area states that needed to recapitalise their banks. That might tip the balance for some of these states to encourage them to join the Banking Union if they felt they could get a pay-out from their 'insurance policy’ if disaster struck.
Perhaps the most significant development was the apparent resurgence in confidence after the first signs of an economic recovery. For Banking Union, ECB Vice President Constâncio was reported to have observed that the imminent, and crucial, Asset Quality Review (AQR) was unlikely to uncover terminal problems at any major European banks. That review must certainly be robust but a positive outcome would remove the single biggest risk that hangs over the eurozone: a banking problem that throws a major state into significant fiscal problems.
Amongst the minor states, Slovenia was able to report that it had liquidated two small banks to head off a 'Cyprus risk’ and that it had enough funds to handle the problems without external assistance. The flow of economic news included a string of more positive reports on Cyprus itself, Ireland, Portugal and Spain.
However, the ministers were at pains to express their support for a continuation of Italy’s tough policies in the hope of heading off threats from former Prime Minister Berlusconi to bring the Italian Government down if his appeal against conviction were refused. It would be an incredible outcome if the economic future of the whole of Italy – and by implication that of the European Union – were thrown into doubt by the antics of a convicted criminal who treated Italy as his personal feudal possession. That fear may be the haunting memory of the Vilnius weekend.
This article was written for British Influence - link to original article.
© Graham Bishop
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