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Conclusion
Although bridge financing is merely an additional source of funding for the Single Resolution Fund, whose normal resources would only be used after several other sources of resolution funding have been depleted, it is a fundamental tool to enable the Single Resolution Fund to fulfil its mission. The ultimate solution will imply a combination of the provision of guarantees and conditional credit lines by the Member States – all with fairly marginal actual fiscal implications - and an acceleration of the Single Resolution Fund mutualisation path, not only of the Fund itself, but also possibly of the guarantees.
To emphasise the common euro area nature of the Single Resolution Fund, speeding up the mutualisation timeline in the short term (i.e. within Stage 1 of the implementation of the Five Presidents’ Report), combined with the accelerated provision of pro-rata guarantees by the Member States, may be the most desirable outcome. It would go a long way to maximise the objective of further weakening the bank-sovereign feedback loop.
This could be complemented by a medium-term goal (already at the beginning of Stage 2, ‘completing EMU’): the provision of a permanent credit line by the European Stability Mechanism to provide the now missing ‘backstop’ to the resolution fund, through a change in the ESM treaty, possibly introduced even before its incorporation into the EU Treaty. As highlighted above, the lesser the degree of mutualisation in the SRF, the more important a common ‘backstop’ becomes.