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The structure of EU Economic Governance was clear in the run up to the crisis. The eurozone central banks were independent and responsible for monetary policy and the governments of the Member States were responsible for economic policy, including fiscal policy.
We need to deliver on what has been committed to – to break the vicious cycle between banking and sovereign debt. Our focus continues to be on delivering what was agreed by the Heads of State and Government, including those of 29 June, 2012.
A significant package of financial services legislation has been developed, some of which has been agreed and some which remains to be implemented. When it is agreed, it will represent a significant enhancement of the financial regulatory structure at European level. The financial sector reforms have been complemented by financial sector supervisory institutions which are cross border, whereas previously we had national financial supervision of cross border financial entities
We intend to progress the European Semester process to a successful conclusion as part of our Presidency and will provide a comprehensive roadmap for the 2013 European Semester process next month to the General Affairs Council.
On the 31st May this year, the Irish people approved ratification of the Fiscal Stability Treaty. In line with Treaty requirements, provision has been made in the Fiscal Responsibility Bill, 2012 for the implementation in national law of the budgetary rule and the debt rule. The former requires the budgetary position of general government to be in surplus or in balance and this will be deemed to be the case if the structural balance of general government is at our medium-term budgetary objective or the agreed adjustment path towards it unless exceptional circumstances apply. The debt rule requires the debt to GDP ratio in excess of 60 per cent to be reduced towards 60 per cent by one twentieth each year.
A new Macro-economic Surveillance Procedure has been added which looks at other imbalances, recognising that debt is only a part of a wider economic picture. This seeks to monitor and act upon asset bubbles, current account divergences (including excessive surpluses), trends in employment and unit labour costs.
I would like to comment for a minute on the underlying elements of Banking Union. There are three key elements:
Supervision
The Commission presented legislative proposals in September for a single supervisory mechanism (SSM) conferring powers on the ECB for the supervision of all banks in the euro area, with a mechanism for non-euro countries to join on a voluntary basis. The SSM along with the related amendment to the EBA regulation constitutes the first element of the banking union.
Banking resolution
As regards bank resolution, the Commission published a proposal on 6 June, 2012. The framework provides for comprehensive and effective arrangements to deal with failing banks at national level, as well as more complete arrangements to tackle cross-border banks. There are three distinct phases to the framework, namely preparatory and preventative measures; early intervention; and resolution tools. The Commission characterises the overriding objective of the framework as ensuring that institutions in difficulties can be allowed to fail without risk to financial stability while avoiding costs to taxpayers.
Deposit Guarantee Scheme
Finally, as regards the Deposit Guarantee Scheme the current proposal represents a recast of the existing Directive. The aim of the proposal is to enhance depositors' confidence by a higher level of coverage, faster payout and improved funding of deposit guarantee schemes. We are fully in favour of robust deposit guarantee schemes that promote greater confidence in depositors and wider financial stability.