The reform of the European Stability Mechanism (ESM) has gone one step further. The eurozone countries They signed this Wednesday the agreements reached in November to reform the European rescue fund. Thus, the ratification process has been launched at the national level so that the fund can have more supervisory powers and provide a new « safety net » in cases of bank failures from the beginning of 2022.
“Today we are taking an important step forward in the further development of the Economic and Monetary Union that will strengthen the capacity of the eurozone to prevent and resolve crises, as well as the Banking Union. We also demonstrate our unity in the goal of making progress on important issues for the benefit of our citizens, ”said the president of the Eurogroup, Paschal Donohoe in a statement.
Important milestone in the development of the Economic and Monetary Union reached today with the signature of #ESM treaty & #SRF agreements. This launches national ratification procedures to allow entry into force as of 2022.
My statement: https://t.co/OBj4rEgUJN#Eurogroup pic.twitter.com/mxy9E5YTA7
– Paschal Donohoe (@Paschald) January 27, 2021
Estonia It has been the only country that has not yet been able to sign the amendments to the ESM Treaty due to the recent change of government, but it has promised the rest of the euro zone partners that it will do so « as soon as possible ».
The Eurogroup gave the past November 30, green light for the amendments to the ESM treaty, which were already agreed in the summer of 2019 but whose ratification process could not be launched due to the controversy it generated in Italy.
In particular, the reform strengthens the powers of the ESM so that this body has more power in rescue situations. In collaboration with the European Commission, the European bailout fund will also design, negotiate and monitor future adjustment programs.
Before reaching this situation, however, countries with problems may have access to a new preventive line of credit, although under certain conditions. The reform « strengthens » these instruments to make them more « effective » and easy to access, as explained by the ESM in a statement.
The reform also facilitates write-offs to creditors in cases of debt restructuring through collective action clauses (CAC)
In addition to increasing the ESM’s supervisory capacity in future bailouts, this body is put in charge of a ‘firewall’ for the Banking Union that will enter in early 2022, one year ahead of schedule until this Monday. When it is operational, it will be possible to draw on this emergency fund, which would be used if the funds are ever exhausted. resources of the Single Resolution Fund (FUR) and that it will have a firepower of up to 68,000 million euros
The reform also facilitates you remove creditors in cases of debt restructuring through collective action clauses (CAC). This was precisely the point that generated so much debate in Italy because it is considered that it could cause an increase in interest rates when these clauses are introduced in sovereign debt issues.
The managing director of the ESM, the German Klaus Regling, stressed that these changes « bring the euro area closer to the goal of completing the Banking Union », a necessary aspect for the Economic and Monetary Union to be « more solid ».
There will be no withdrawal of stimuli
The president of the Eurogroup, Paschal Donohoe, has promised this week to the MEPs that there will be no abrupt withdrawal of economic stimuli implemented to alleviate the impact of the crisis caused by the pandemic. As he said, « the immediate priority » remains to support the citizens and businesses most affected by it.
The also Irish Finance Minister appeared for the first time as head of the Eurogroup before the Economic Affairs Committee of the European Parliament, where he assured that it is « important » that the Ministers of Economy of the common currency reach an agreement in summer on the policy that their budgets must follow in 2022.
“To avoid any misunderstandings, I will emphasize that this does not mean an imminent withdrawal of fiscal stimulus. We all agree that our immediate priority is to put up an economic shield and help our citizens, in particular young people and those most exposed to the crisis. There should be no situations on the edge of the precipice, « he said.
The president of the Eurogroup also stressed that one of the consensus of the finance ministers of the euro zone has been the need to maintain an expansionary budgetary policy both in 2021 and throughout 2021 because they all recognize the « danger » that would otherwise be posed