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Nonetheless, Commissioner Barnier said that once the Agreement is in force (provisionally set for 1 March 2103), the ESM can provide direct re-capitalisation for any of the 200 banks within the net. BUT – and it is a very significant BUT – the little word “unanimous” has crept into the ESM’s decision-making mechanism for such a request.
So investors expecting an immediate bailout of Spanish banks are likely to be very disappointed. Clearly, there is no moral reason for the rest of Europe to pay off the mistakes of a particular nation’s bank supervisors – nor does this agreement create a legal requirement for that to happen. As the ECB gets into the details of its new task, it could reasonably expect all of its new charges to undergo stress tests of the type that were done on Spain’s banks, and is now happening to Cyprus’ banks. An obvious step to avoid the risk of an early collision between bank supervison and monetary policy roles would be taking charge only of proven `good banks’.
So that leaves the nasty question of who pays for the resolution of the `bad banks’? Over to the Summit of the Heads of Government later today!
Van Rompuy invitation letter: “The main purpose of this meeting will be for us to discuss a "specific and time-bound roadmap" for the completion of the Economic and Monetary Union. It is indeed crucial that, in order to boost confidence in the long term viability of the EMU, we set out the milestones that will ensure we close the gaps in the EMU architecture which were revealed by the crisis…” The plan is that this section of the Conclusions of the Summit will be agreed after dinner today. In the early hours of Friday, some sort of deal should have been done. Will the church bells then ring out across the lands of Europe to mark the start of the new dawn of economic and political union? Probably not!
`News management’ has already indicated that the roadmap itself will not be part of the Council Conclusions. Realistically, that would be difficult for Germany to agree ahead of the September 2013 election. The ever-closer union genie is out of the bottle completely now, and it does not need a particular timetable for it to progress powerfully. Assuming Mrs Merkel is re-elected in September, she spelt out to the European Parliament in November a `federalist’ agenda for the future of Europe that included the possibility of a further Treaty change. The contents of any such change will be the moment of `federal’ truth.
But in the meantime there are several litmus tests to be passed to check the actual sincerity of the eurozone’s leaders. First, the `two pack’ must be agreed – cementing powerful economic and budgetary integration now, not several years ahead. Then the Third European Semester must work through successfully so that all euro area states are confirmed as being on a path to genuine structural reform of their economies. It is this patient, step-by-step reform that will raise the competitiveness of the euro area economies that will be the permanent solution of the crisis. That is the pre-condition for major federal steps in the years ahead.