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The Eurogroup relaunches a plan to complete the banking union in several phases | Economy

The President of the ECB, Christine Lagarde, the Commissioner for Economy, Paolo Gentiloni (in the center), and the President of the Eurogroup, Pascal Donohoe.
The President of the ECB, Christine Lagarde, the Commissioner for Economy, Paolo Gentiloni (in the center), and the President of the Eurogroup, Pascal Donohoe.JULIEN WARNAND (EFE)

The Eurogroup has set out to get the banking union off the ground and complete it once and for all. Its president, Paschal Donohoe, has long been engaged in a task that, in theory, should culminate in some type of deposit insurance for customers and entities in the euro zone that equalizes the risks in the event of bank failure. The road is not going to be easy, as Donohoe himself admits, which is why the plan that he presented this Tuesday to his colleagues, the finance ministers of the euro zone plus those of the rest of the EU Member States, contemplates very long and is always subject to consensus not only on the final project, but on each of the steps that are taken. “It continues to be a very technically and politically complex project,” the Irish Finance Minister also admitted at the end of this Tuesday.

Of the three legs that the banking union should have, which started in 2012, two are already underway: the supervision of banking entities falls to a shared body, the Single Supervisory Mechanism, led by the ECB, and a resolution tool and/or liquidation of entities, the so-called Single Resolution Mechanism. But this structure lacks a third branch: a deposit guarantee system. “We’ve tried it before for a decade and we’ve never gotten a deal,” Donohoe recalled.

Without the latter, there is a clear asymmetry in the euro zone: there is a shared inspection with common criteria but the risks are not shared, so that if a serious financial crisis like the one of the past decade arrives, the threat of the monetary area breaking up is big. Or seen from the other side of the coin, as the president of the European Stability Mechanism, Klaus Regling, has done, pointing out that it would help “avoid financial fragmentation.” Before he explained that closing the circle of the banking union would help “increase the potential of the European economy.”

Germany’s reluctance

But these advantages have so far not been enough motivation for the countries of the euro area to come to an agreement. There are two clear fronts. One is led by Germany which, in line with its traditional aversion to pooling risks, is reluctant to create this common deposit guarantee and sets its conditions. One of them has been that the amount of sovereign bonds that banks can buy from their own country be limited and count less to measure their capital or that the contributions of entities to that deposit insurance be greater if the quality of the debt title public is lower. And Italy does not pass there, nor is Spain in favor, although here it is Rome that fights the most. Here the project has run aground for years and here the stumbling block reappears: “They [en referencia a los ministros de Finanzas de Alemania, Christian Lindner, e Italia, Daniele Franco] They have been clear and have asked for more work and more efforts on these two points, which is exactly what I expected”.

And as he suspected what was going to happen, because he already suffered it last year, this time Donohoe has changed his strategy. To begin with, he has given him a higher media profile than in 2021, when he found that there were no wicks to reach a common point. Nor was it achieved in 2019, although then the failure was in charge of his predecessor, the Portuguese Mario Centeno. Last December the European Council put it back on the agenda and the Irishman resumed the task by visiting the finance ministers of the euro zone in their respective countries -in February he was in Madrid with Nadia Calviño- to learn their positions first-hand.

He knows in depth all the sides of the coin.

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Workplan

With this, he has designed a work plan, presented for the first time this Tuesday in which he proposes to advance in two phases and four lines of action. This two-phase, long-term advance ensures the political participation of the countries at all times and that they can put the brakes on if they are not convinced by what they see. “There would be a checkpoint between the two phases and this checkpoint it is an important moment. First, it would give a guarantee to the Member States to assess whether the conditions are in place to move to the next phase and to assess how additional measures based on principles that are already included in the work plan would be applied”.

In the four lines of work, for their part, two stand out: those already mentioned on deposit insurance and sovereign bonds. For the first, Donohoe’s proposal consists of starting by enabling liquidity lines for national guarantee funds in case they have to come to the rescue of depositors (who in the eurozone are guaranteed 100,000 euros in case of bankruptcy). of the bank) run out of resources. Later, in the second phase, a reinsurance would be created that would allow the risk to be mutualized. “Not all, a part,” clarify community sources.

The homogenization of the criteria for the resolution or liquidation of entities is another of the lines raised in the work plan. In theory, this should already be resolved when the Single Resolution Mechanism was created, but as has been seen over the years, it requires clarification. The case of Banco Popular, the only time this instrument has intervened until now until the war in Ukraine, and what happened with the medium-sized bank in Italy, which has been rescued by Rome, serve as an example of why more is needed homogeneity. The last of these lines of action concerns establishing clear rules to guarantee that the subsidiary banks are treated in the same way as the parent when both entities are in the eurozone.

The countries of the Eurogroup have to agree on this map of action, which will now debate for weeks at a level lower than that of ministers (secretaries of state and general secretaries), to see if it is possible to set a definitive action plan in June. If it is reached, the work of the European Commission will begin, which anxiously awaits being entrusted with the task of drafting the rules that complete the banking union, as explained by the Commissioner for the Economy, Paolo Gentiloni: “The Commission will be ready to draft the proposals legal requirements”.

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