The financial future of Eurozone on the agenda of Friday’s ECOFIN council

  The agenda of the Economic and Finance Ministers’ Council (ECOFIN) of 15 November in Brussels is very heavily loaded. The ‘Taxation of savings incomes’ and the ‘Revision of the Anti-Money Laundering Directive’ may be major issues, but the first reading of Commission’s proposal for the creation of the Single Resolution Mechanism (SRM) will haunt ECOFIN’S day and Eurozone’s future. In two days from now it will be clearer if the Union is to follow Germany’s way for a limping European Banking Union, or the Commission’s proposal supported wholeheartedly by the European Central Bank for a solid financial space at least in the euro area. On top of that, the Commission is preparing a strong blow against Berlin, blaming this country for excessive trade and fiscal surpluses at the expense of the rest of the Eurozone. Germany’s external trade with the rest of Eurozone leaves a continuously growing huge surplus to the detriment of the rest of the EU with the Berlin government boasting about its competitive automotive and machine production industry. The European Sting has been following this issue very closely. On 23 October Elias Lacon wrote that “On the political level, the European Commission and the IMF have been warning Germany for months now about its inextricable over stretched internal fiscal and revenue double consolidation. Now the Commission comes back with an excellent economic paper, which employs a structural multi-country model and assesses the negative impact of fiscal consolidation measures undertaken in 2011-13, in the euro area periphery and the core countries”. Now the ECB has joined the club of the parties blaming Germany for not spending more and hoarding less. The Commission, the IMF and now the ECB insist that if Germany relaxed its fiscal and incomes austere policies the entire Eurozone may start breathing again. Instead of that, Berlin keeps absorbing whatever strength is left in the rest of Eurozone. ECB opposes Berlin The decisive step taken by the ECB last week, when the central bank reduced its interest rates and it further loosened its already relaxed monetary policy, despite the strong reaction of its two German members. Jens Weidmann, President of Deutsche Bundesbank and Jörg Asmussen, member of the Executive Board of the ECB, strongly resisted the reduction of central bank’s interest rates. It was not only that, though. Also last week, ECB’s legal service almost entirely endorsed the Commission’s proposal about the creation of the Single Resolution Mechanism and Fund, contrary to the Berlin opinion. The Commission proposes the creation of a centrally operated SRM and Fund the soonest possible, while Berlin wants decentralised bank resolutions without the support of central financing. Germany also insists that the Commission’s proposal, in order to be soundly based, presupposes an amendment of the Lisbon Treaty. This last allegation was plainly rejected by ECB’s legal service. A crucial ECOFIN In view of the next ECOFIN meeting this Friday, the Commission issued today a Press release saying “the European Commission has proposed a Single Resolution Mechanism (SRM) for the Banking Union on 10 July 2013, which includes a single resolution board and a single resolution fund so we can tackle future bank crisis efficiently with minimal costs to taxpayers and the economy”. The Commission adds that the “The SRM will basically apply the substantive rules of the draft Bank Recovery and Resolution Directive in a coherent and centralised way ensuring consistent decisions for the resolution of banks”. The EU’s executive arm tries, in this way, to pre-empt the reaction of the German Federal Minister of Finance Wolfgang Schäuble. In reality, this Press release tells Germany that a central resolution authority will do nothing more than enforce the already agreed upon draft Bank Recovery and Resolution Directive in a uniform and transparent way. Despite the fact that there is still no new government in Berlin, and the present one is simply an interim administration, it’s highly probable that Schäuble retains his position in the CDU-SPD grand coalition. Even if he doesn’t, he will continue being a very influential figure in German politics, probably from a more senior government position. Given that, what is going to happen in the next ECOFIN Council on Friday will determine the shape of Eurozone’s financial future. Not to forget, that the European Banking Union is the most important step in EU’s history after the introduction of the single currency.