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04 December 2018

Eurogroup report to Leaders on EMU deepening


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The Eurogroup agreed on a comprehensive package to further strengthen EMU.


This includes notably the further development of the instruments and the role of the European Stability Mechanism (ESM), the operationalisation of the common backstop for the Single Resolution Fund (SRF) and possible instruments for competitiveness, convergence and stabilisation in EMU, which will strengthen further the resilience of the euro area.

We welcome the progress made to reach a political agreement on the Banking Package by the co-legislators in which the balance of the Council compromise should be maintained. We look forward to the final adoption of the Banking Package and the non-performing loans (NPL) Prudential Backstop preserving the balance of the Council compromise, which are important for further progress towards risk reduction and thereby towards risk sharing.

ESM reform

We agreed on a term sheet, annexed to this statement, for the further development of the ESM. The ESM has played a key role in crisis management by providing timely and effective stability support to euro area Member States. Enhancing the role of the ESM will further strengthen the crisis prevention and resolution capabilities of the euro area and its resilience.

We agreed on the main details for the operationalisation of the common backstop to the SRF – the detailed terms of reference are included in the annex. The common backstop to the SRF will be fiscally neutral in the medium-term and further strengthen the credibility of the Banking Union. The backstop will be introduced earlier provided that sufficient progress has been made in risk reduction to be assessed in 2020, as set out in the terms of reference.

We also agreed to increase the effectiveness of precautionary instruments while reaffirming the last resort character of ESM support and ensuring the appropriate level of conditionality, which remains an underlying principle of the ESM Treaty. The euro area will be equipped with these more effective tools for countries with sound economic fundamentals, which could be affected by an adverse shock.

We welcome the agreement reached between the ESM and the Commission on new modalities of cooperation within and outside financial assistance programmes, in full respect of the EU legal framework. This agreement is without prejudice to the role and competencies of the ECB as defined in the existing legal framework.

There is broad support for the need to improve the existing framework for promoting debt sustainability in the euro area. We intend to introduce single limb collective action clauses (CACs) by 2022 and to include this commitment in the ESM Treaty. When appropriate, and if requested by the Member State, the ESM may facilitate the dialogue between its Members and private investors. This involvement would take place on a voluntary, informal, non-binding, temporary, and confidential basis.

Banking Union

Furthermore, we welcomed the sustained progress made with risk reduction, as reported by the institutions, notably on NPL reduction and minimum requirement for own funds and eligible liabilities (MREL) build-up. We look forward to progress regarding insolvency regimes, in particular the adoption of the legislative proposals on insolvency and the benchmarking exercise.

We welcomed the ongoing work on improving the monitoring of the implementation of Anti Money Laundering measures (AML) and look forward to the adoption of an Action Plan at the 4 December Ecofin Council and progress on the ongoing legislative work. We invite the Commission to propose  longer term actions to bring about further improvements in the prudential and AML frameworks identified on the basis of a thorough assessment in due consultation with Member States.

We also call for ambitious progress on the Capital Markets Union and progress towards adoption of key pending legislative proposals by Spring 2019.

In line with the mandate from the June Euro Summit, work has started on a roadmap for beginning political negotiations on a European deposit insurance scheme (EDIS), adhering to all elements of the 2016 roadmap in the appropriate sequence.  Further technical work is still needed. We will establish a High-level working group with a mandate to work on next steps. The High-level group should report back by June 2019.

We also took stock of the current set-up for liquidity provision in resolution. There is broad support for the assessment of the institutions that there are limitations in the current framework which may hamper its effectiveness. Further work on solutions with the input of relevant institutions will be done in the first half of 2019. There should be reporting by June 2019.

Possible budgetary instruments for the euro area

The Eurogroup has discussed possible new budgetary instruments aimed at strengthening the euro area. We have notably discussed proposals from the Commission and from Germany and France, which suggest the establishment of instruments for competitiveness, convergence and stabilisation in the EMU.

As regards the instruments for competitiveness and convergence, France and Germany proposed an architecture for the Eurozone budget, which would be part of the EU budget. Its size would be determined by the heads of state and government in the context of the Multiannual Financial Framework (MFF).

Subject to a mandate to be given by the Euro Summit, work could proceed on the design, implementation and timing of such an instrument for convergence and competitiveness.

The possible features of a stabilisation function were also discussed, including the unemployment insurance scheme. We did not reach a common view on the need and design of such a function. Technical discussions continue. 

Way forward

As regards the ESM reform (including the common backstop to the SRF), subject to the guidance from the Euro Summit, we stand ready to prepare the necessary amendments to the ESM Treaty by June 2019. We stand also ready to work further on all the above-mentioned issues in the first half of 2019.

Terms of reference of the common backstop to the Single Resolution Fund

Term sheet on the European Stability Mechanism reform

Joint position on future cooperation between the European Commission and the ESM (press release)

Main results - Eurogroup, 03/12/2018

Remarks by M. Centeno following the Eurogroup meeting of 3 December 2018

We started our meeting with an overview of the euro area economy. The IMF presented their initial views based on the so-called article IV mission. Given the current risks to our economic outlook, the IMF’s view that building buffers is needed at the current juncture is broadly shared.

We then moved on to Greece. It has been a while since we discussed Greece and that is a good thing. The Commission presented the first enhanced surveillance report – the Eurogroup will be following these reports on a quarterly basis. This first report shows some good results. Ministers welcomed that the primary surplus target of 3.5% of GDP is projected to be met in 2019. It’s the third year in a row this happens. This shows that the Greek authorities are committed to a sound fiscal path.

At the same time, further progress is clearly needed in some areas. This includes privatisation, arrears clearance, insolvency legislation and product market reforms. We all agree that it is paramount to continue the good work initiated in recent years by implementing the reform agenda. That is the sustainable path towards increasing Greece’s growth potential.

We then discussed Spain and Cyprus on the basis of post-programme surveillance. Both economies are performing well.

We particularly welcomed the strengthening of the Spanish financial sector.

We praised the fiscal performance of Cyprus and emphasised the need to reinforce the NPL reduction strategy and overall reform momentum.

A highlight was our discussion on draft budgetary plans of our euro area member states, following the 19 opinions provided by the Commission. There is a more detailed statement on this precise issue.

I need to remark that it is the 6th time that this exercise is conducted and it is the first time ever that no country is expected this year to register an excessive deficit, meaning above 3% of GDP.

The case of Italy deserved special attention, since the Commission identified a particularly serious non-compliance in the Italian budget plan.

We support the assessment by the Commission and recommend that Italy takes the necessary measures to be compliant with the Stability and Growth Pact.

Sound public finances are a condition for sustainable growth.

Respecting the rules that underpin our currency is essential to ensure consistency and stability in the euro area.

Going forward, we welcome and we support the ongoing dialogue between Italy and the Commission in pursuit of common ground.

We also adopted a work programme for the first half of 2019. And we had a sneak preview of the Commission’s plans to reinforce the international role of the euro. The Commission will issue a Communication on this, which we will study carefully - we will come back to this next year. Advancing on our plans to reform the euro area is a good contribution to enhance the international role of our single currency.

So now, on EMU reform, this was really the biggest topic on our agenda. Our plans for the future of the euro area.

Our aim was to agree on a report to deliver to the Euro Summit next week. Very hard negotiation, but I think the result is a breakthrough on some key issues.

The outcome of our deliberations is a report to the Leaders with 3 annexes:

  1. the terms of reference of the backstop
  2. the term sheet on ESM reform
  3. the ESM-Commission cooperation agreement.

My team is still consolidating the texts agreed, after this very intense and exhaustive negotiation.

This will be delivered to you shortly. I will then deliver this outcome in person to President Tusk this afternoon.

We have agreed to enhance the role of the ESM to further strengthen the crisis prevention and resolution capabilities of the euro area. We will also increase the effectiveness of ESM precautionary instruments. At the same time, we reaffirmed that ESM support is a last resort and that we need to ensure an appropriate level of conditionality.

Ministers very much welcome the agreement reached between the ESM and the Commission, which will improve cooperation within and outside financial assistance programmes.

Our agreement on the backstop to the Single Resolution Fund is an important step to further strengthen the credibility of the Banking Union. The backstop will be introduced earlier than the originally foreseen date of 2024, provided that sufficient progress with risk reduction is achieved by 2020.

Ministers also agreed on a process to promote debt sustainability in the euro area. To this end, we will introduce single-limb collective action clauses, known as CACs, by 2022.

This is not the end of the road in our plans to reinforce the euro. We will build on progress made to continue to work next year.

As regards the instruments for competitiveness and convergence, France and Germany proposed an architecture for the Eurozone budget, which would be part of the EU budget. Subject to a mandate to be given by the Euro Summit, work could proceed on the design, implementation and timing of such an instrument for convergence and competitiveness.

The possible features of a stabilization function were also discussed, including the unemployment insurance scheme. We did not reach a common view on the need and design of such a function but technical discussions continue.

More work is also needed on EDIS before we can agree on a roadmap to begin political negotiations. The news here is that we will establish a high-level working group with a mandate to work on next steps and report back in June 2019.

 

We will continue working on all possible solutions to the limitations in the current set-up for liquidity provision in bank resolution. [...]

Full remarks



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