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Future development of EU and ESM
We have seen the German approach to economics having a huge influence on the eurozone and this will continue with the Bundestag approving every ESM decision for instance. Should this change and under what conditions should it change?
I think this is the wrong perception. The ESM is not dealing with the Bundestag. We have a governance at the ESM and previously at the EFSF where important decisions are taken by consensus of the 17, and from January on by 18 finance ministers. Every finance minister has a different situation at home. The decisions related to the ESM are important decisions so certainly all the finance ministers would get the backing of their Prime Ministers. In a number of countries - and this goes far beyond Germany - they also need the backing of their national parliaments. This parliamentary approval is required in at least five or six countries but this is the intra-national arrangement that every finance minister has to make sure that he or she has the backing at home. So we do not deal with any particular parliament.
Do you think that is fair to have it like that? Should there be changes, i.e. give each parliament a very big say in what is seen as the sovereignty of another country?
The parliaments or the national governments - that is why we have unanimous decisions - take on very large risk. Therefore every country has a say in this. Every country has a veto right. How each country organises this is their business and those countries that do have a strong role of their parliaments have to involve them in the decisions. These 5 or 6 countries are unlikely to change their approach at any time soon because the parliaments take the view - and some of them are even supported by their Constitutional courts - that they must take a strong interest because they take on a strong risk in guaranteeing our lending operations. So I do not expect this to change. But the important point is that despite what seems like a complicated system, the ESM and EFSF have been able to do what is required in a crisis: we are supporting five countries and there was always a unanimous decision of our Member States despite the complicated procedures. We have disbursed €220 billion which is a lot of money. It is understandable that parliaments want to know what is going on and have a say in some countries. That may make it complicated sometimes but it has not stopped us doing what needed to be done to stabilise markets.
Banking and Fiscal Union
Do you believe there will be a full Banking Union? When? And do you think this must be accompanied by political union?
We are in the middle of this process. The first important step was taken to make the ECB the single supervisor. Without the crisis this would never have happened because even during the negotiations of the Maastricht Treaty, more than 20 years ago it was discussed whether the ECB should play a role in this area or not and there was no consensus. Now we know there are next steps that should follow. The Council, the Commission and the European Parliament will be working intensively on this over the next few months. The Single Resolution Mechanism and Single Resolution Fund are the important complements to the Single Supervisor. There is also the ESM’s instrument of direct bank recap which is part of the elements but not the most important one. And there is also the issue of whether the ESM should be a backstop to the fund. All these issues are controversial, they are also very complex. So it is understandable that it takes a little bit of time to come to an agreement.
The crisis has clearly demonstrated that we are able even when the starting point is very controversial to come to a resolution in the end. Sometimes it takes some months longer than expected but everybody knows it is important to come to an agreement on these complimentary issues, particularly on the resolution mechanism and fund within the next few months. Nothing works without the European Parliament in this area and it will close in April to have elections in May and therefore the time pressure is there and that can also be quite helpful sometimes.
The ESM providing a back stop for the Resolution fund, where has that got to now?
It has not been decided. It’s a proposal - some countries are in favour and some against. I don’t know what will happen in the end.
You appeared to be open to it?
There are many proposals of what the ESM should do. One proposal is that the ESM should become the Single Resolution Mechanism. But I don't think this is an efficient solution, we are not lobbying for that. Concerning the Single Resolution Fund I see some merit for the ESM to become a backstop. The reason is that we could be helpful here and there would be some synergies to give that function of backstopping the Single Resolution Fund to the ESM although it would require a change of our ESM Treaty which is never easy politically. But on the substance I see some merit so we have to see what the political outcome will be.
The future role of the ESM, do you see that expanding?
We have expanded more than I ever expected, so I am not pushing for any more. But we have to see how the euro area develops.
How would you like to see the euro area develop - is development on the banking, fiscal sphere possible without political union?
It always depends how you define political union, fiscal union. I think we have moved quite a bit in that direction. Of course we do not have a fiscal, political union in the sense that we have one budget and one government. Then we would be the United States of Europe and that is not what the majority of the population wants or what governments want. That was more popular 30 or 40 years ago. So it seems unlikely that we reach full political and fiscal union, but steps have moved us in that direction a lot more than before the crisis. I believe is important for the good functioning of EMU. With all the rules that have been adopted the last few years to have much tighter and broader economic policy coordination, also in the fiscal area and beyond that we have moved a great deal towards political union. That move is truly important and if the new rules are fully implemented I am confident that monetary union will work better after this crisis than before the crisis.