Eurogroup: IMF proposes Germany disposes

Wolfgang Schauble, German Federal Minister for Finance talking to Press before joining yesterday’s Eurogroup (Council of the European Union photographic library, 8/7/2013).

Wolfgang Schauble, German Federal Minister for Finance talking to Press before joining yesterday’s Eurogroup (Council of the European Union photographic library, 8/7/2013).

In yesterday’s Eurogroup, Eurozone’s policy setting council, the 17 ministers of Finance had two important items on their agenda; IMF’s recommendations for the European economy under Article IV Consultation with the Euro Area, and the approval of the next loan trance to Greece. On both accounts the opinion of Germany weighed a lot. In this Eurogroup’s session participated the general director of IMF Christine Lagarde and the heads of the troika for Greece, made up by officials from the European Commission, the European Central Bank and the IMF. Let’s start from the beginning.

IMF proposes, Germany disposes

IMF’s appraisal for Eurozone’s economy was not without thorny corners both on steps taken so far and on policy initiatives for the future. In the Press conference after the council, Ollie Rehn, the EU Commissioner responsible for Finance and the euro, mentioned four IMF observations with which he said he agreed. He noted: “I will leave it to Christine to outline the key findings of the consultation. I agree, and the Commission agrees, on the four points outlined by Christine Lagarde”.

Rehn explained that “In particular, I share the view that a full banking union is necessary to reduce financial fragmentation, and so is a profound cleaning up of banks’ balance sheets through comprehensive and forward-looking asset quality reviews and system-wide stress tests. I also agree we need to have credible fiscal backstops in place – national and/or European”.

At this point it must be mentioned that Rehn’s remark in relation to ‘fiscal backstops’ was made in reference to Ecofin’s decision about the bank resolution procedure. This is a new EU draft Directive considered as one of the cornerstones of the European Banking Union. Those fiscal backstops are meant to protect member states taxpayers from undertaking obligations stemming from toxic assets of failing banks during resolution.

Rehn however said nothing about the most crucial issue raised in IMF’s report about the banking union. The Fund observes that Eurozone banks are in a bad shape and most of them cannot recognize and write down losses. In view of this the IMF’s report says that a strong banking union is the only cure. The problem however the IMF raised is that the resolution mechanism and authority, cornerstone mechanism for the banking union, have to be centrally managed and not decentralized at national level, as the Ecofin decided recently.

Says the IMF: ”A strong single resolution mechanism is critical to ensure timely and least-cost resolution of banks. The goal should be a centralized authority with power to trigger resolution and make decisions on burden sharing. By contrast, compromise solutions that leave resolution at the national level while supervision (by ECB) is centralized carry significant risks, including of perpetuating bank-sovereign links and potential conflict between national supervisors in cross-border resolution”.

This position for centrally managed bank resolutions was held also by the European Central Bank, the European Commission and Ollie Rehn personally. Unfortunately Germany insisted that resolutions should be left to national authorities. Berlin didn’t want a central resolution authority because in case of a big bank failure there might surface obligations which would have to be born also centrally. Obviously Germany didn’t want to share risks that might stem from a let’s say Spanish bank resolution. Ecofin followed Berlin’s option and decided decentralized (in member states) bank resolution, while bank supervision remains centrally managed by the ECB. This is the antithesis that the IMF believes it may undermine the banking union. Rehn avoided commenting on that.

Greece gets want she wants

Last but not least, yesterday’s Eurogroup had to deal with another chapter of the Greek tragedy. The heads of the troika found that the country was behind with its obligations, mainly in upgrading the tax authority and tackling overpopulation of the public sector. Both those issues were enough to block the next loan tranche disbursement. Such a development, however, could trigger a chain reaction, leading to the conclusion that the whole Greek programme, of German aspiration, is wrong. Obviously the Merkel administration is to be held responsible for that. With the September German elections in view, though, this could have devastating effects on Merkel’s re-election prospects.

It was not a surprise then that the German minister of Finance, Wolfgang Schaeuble, rushed even before the Eurogroup meeting and announced that Greece is doing well and only some details of the country’s obligations are still pending. As a result the Eurogroup decided, “with satisfaction that the programme is broadly on track with the prior actions to be implemented shortly. Greece has made further progress in implementing the fiscal and structural reforms foreseen in the agreed policy conditionality, albeit in some areas at a slow pace”.

In any case Greece is to receive the next soft loan sub-tranche of EUR 2.5 billion from the EFSF plus “an amount of €2bn, equivalent to the income on the SMP (Securities Markets Programme) portfolio accruing to euro area national central banks in 2012, will be disbursed to Greece’s segregated account”.

In short, every important decision is now expected to support Merkel’s re-election prospects even at the expenses of EU taxpayers, whose interests she widely advertises to effectively protect.

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

What has changed in the French politico-economic horizon

Trade barriers are slowing plastic-pollution action. Here’s how to fix it

Remembering Kofi Annan

European Commission increases support for the EU’s beekeeping sector

Blockchain will make sure green pledges aren’t just greenwash: a new initiative by young leaders at the World Economic Forum

New report says better metrics could have prompted stronger response to the crisis

Eurozone and Britain heading in different directions

How 3 MENA business leaders are building resilient companies post-COVID-19

Bring killers of journalists to justice: UN agency seeks media partners for new campaign

Recession: the best argument for growth

Amazon wildfires are tomorrow’s breathtaker

Long-term EU budget: MEPs lay down funding priorities for post-2020 budget

European Commission secures EU access to Remdesivir for treatment of COVID-19

How India’s globalized cities will change its future

European Business Summit 2014 : The Sting Report, Day II – Business, Politics and EBS 2015

Germany loves a strong euro; the new Fiscal Councils can deliver despite the Greek chaos and a wider questioning of austerity

Antitrust: Commission opens investigation into Broadcom and sends Statement of Objections seeking to impose interim measures in TV and modem chipsets markets

5 creative alternatives to plastic packaging

UN launches ‘South-South Galaxy’ knowledge-sharing platform in Buenos Aires

UN health agency to gauge global threat, as China confirms coronavirus transmission between humans

Horse meat runs faster than authorities…

Biggest ever UN aid delivery in Syria provides relief to desperate civilians

250+ senior claims leaders under one roof, exchanging transformation strategy

GSMA Mobile 360 Series – Latin America, in association with The European Sting

Inflation not a problem for Europe

Upgraded EU visa information database to increase security at external borders

5 inspirational women with important lessons for success in business

Two major EU projects falter; the Schengen Agreement now freezes and Eurozone fails to resolve the Greek enigma

How young people are turning the tide against corruption

The Indian case: health policies need to keep pace with public health literacy

Africa’s shrinking lake shows the impact of climate change on women and indigenous people

Court of Auditors: EU budget money is there to be spent not to create value

Scientists just got closer to making nuclear fusion work

Security Union: Commission welcomes political agreement on removing terrorist content online

Guterres says UN stands ready to support Brazil’s search and rescue effort in wake of tragic dam collapse

Civil society groups matter for Cambodia’s sustainable development: UN expert

UN condemns attack that leaves one ‘blue helmet’ dead in Central African Republic

What we can learn from Asia’s courts of the future

Trump to run America to the tune of his business affairs

Indonesia’s imams are joining the fight against plastic bags

Collective action now, the only way to meet global challenges, Guterres reaffirms in annual report

Additional and more flexible funding to help those most in need

REACT-EU: EU support to mitigate immediate effects of the COVID-19 crisis

OECD Steel Committee concerned about excess capacity in steel sector

We can meet the SDGs using the wisdom of crowds. Here’s how

8 things we need to do to tackle humanitarian crises in 2019

Evidence shows ‘brutal’ killing of Saudi journalist ‘planned and perpetrated’ by State officials: UN independent expert

FROM THE FIELD: ‘Eco-warriors’ fight climate change in South Africa

We should treat data as a natural resource. Here’s why

Why people with disabilities are your company’s untapped resource

5 steps to safe and effective COVID-19 vaccine distribution

Somalia: UN Security Council condemns terrorist attack in which dozens were killed or injured

The role of junior entrepreneurs as a bridge between academia and business world

5 things we get wrong about young people, according to a US study

EU and China sign landmark agreement protecting European Geographical Indications

Researchers have invented a brick that can build itself

Advice on fighting COVID-19 from the Red Cross, a chemist and academics around the world: Today’s coronavirus updates

This is what chief economists think about the global economy right now

These are the pitfalls of a cash-free society

EU recovery and long-term budget: Leaders must do better

More Stings?


Speak your Mind Here

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s