* * *
This can be brief. Readers may
recall how, with great fanfare, the June 2012 European Council Summit (or, more
specifically, the Euro
Area Summit) announced that it was ‘imperative to break the vicious circle
between banks and sovereigns’. This raised the possibility that the European
Stability Mechanism (ESM) might be used to recapitalize distressed banks, an
idea that the summit conclusions specifically discussed. Peripheral countries
were obviously overjoyed at the prospect that they might be relieved on the
fiscal burden of recapitalization, thus breaking the dreaded ‘sovereign-bank
link’ that were driving them into insolvency.
As many readers know,
disappointment soon followed. In a joint
statement in September (previously discussed on EUtopialaw here),
the finance ministers of Germany, the Netherlands, and Finland made clear that,
in their view, ‘the ESM can [only] take direct responsibility of problems that
occur’ after a country has relinquished fiscal control under an ESM
bailout and supervision memorandum. Otherwise, ‘legacy assets should be under
the responsibility of national authorities’.
So the announcement this week,
that Eurozone finance ministers are considering whether to cap the total amount
of direct assistance for bank recapitalization at €80 billion, should probably
not come as a surprise. As Reuters reports:
German Finance Minister
Wolfgang Schaeuble said the ESM should ideally not be used at all and stressed
that funds for banks were limited already.
"The ESM is primarily
there in order not to be used, but to create confidence, and for that it needs
a certain level of lending capacity," Schaeuble told reporters after a
meeting of euro zone finance ministers.
"Therefore what can be
used for banking capitalisation is limited anyway, especially as we know that
the funds used for banking recapitalisation must be backed by more
capital."
Commenting on a similar report in the FAZ, Wolfgang
Münchau noted on his newsletter (alas,
sub. req.): Schaeuble’s position ‘contains a whole number of outrages. It is
clear, by now, that the June EU summit’s statement to separate the sovereign
and banking risks is currently being turned into a straight-forward lie …. An
€80bn allocation could be used up by a single bank rescue’. Little
more need be said, apart from quoting a previous statement by Münchau in the FT last
week, noting ‘the lack of political will to sort out the banking mess,
which is at the heart of the eurozone crisis. Instead, governments are seeking
refuge in symbolic gestures’.
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