December 5, 2020

Berlin unlocks the deposit guarantee fund and paves the way for the banking union | Economy

The euro zone countries are one step away from fit the key piece of the Banking Union. After five years of negotiations, Berlin has lifted the veto to a community reinsurance that protects the deposits of European savers. In return, the Nineteen will adopt a package of measures to strengthen banking supervision, reduce risks and limit the bank's exposure to sovereign debt. Official community sources said the Eurogroup is close to closing an agreement in December to draw up a road map to create that instrument.

The Nineteen are closer to finally laying the foundation for the third pillar of the Banking Union. After having established the banking supervision and resolution mechanisms, the creation of a scheme to protect citizen deposits was still pending. For Brussels, this mechanism is key to advancing the slow process of mergers between banking groups in different euro countries and preventing capital leaks that were seen in the last crisis, especially in southern Europe. Then, thousands of citizens decided to seek refuge in other countries for their savings from the financial crisis.

However, Germany has maintained a tight blockade of the project to create this reinsurance of deposits for almost five years. He German Finance Minister Olaf ScholzHe showed this Wednesday at a conference organized by Bloomberg in Frankfurt his willingness to lift that veto in exchange for various conditions. According to a document prepared by his department to which EL PAÍS has had access, Scholz proposes a "deposit reinsurance system". This mechanism, protected by Community legislation, would be based on an intergovernmental agreement to complement national deposits with a fund administered by the Banking Resolution Fund that would be compartmentalized by countries.

The fixed document that, in case of bankruptcy, deposits would be covered according to a sequence of three steps. First, with the resources of the national guarantee funds; If these are exhausted, community reinsurance would be used through loans that should be returned. If more financing is still needed, the rest of the partners of the single currency would intervene, although in that case with the support of a rescue fund program (Mede).

The Eurogroup on Thursday will address progress in this area. A senior community official expressed his "optimism" and found it viable that in December there may be an agreement to set a road map on which to start work in January. Just a year ago, within the Eurogroup, that instrument was almost dead. "He is in assisted breathing," he commented then. In December of last year, that community fund was still a taboo for the German chancellor Angela Merkel. At the last summit of 2018, Merkel had a rough disagreement with Pedro Sánchez, who claimed that the creation of that mechanism should be included in the conclusions of the meeting. Merkel refused.

Roadmap in December

However, this senior official explains that countries have moved for the first time from their "red lines". Spain has been at the forefront, precisely, of the technical group that has coordinated the work on that fund. Sources of the Ministry of Economy agreed that the finance ministers of the euro zone will try to approve in December a road map that must be ratified by the heads of state and government.

These sources explain that the change in positions is due to the fact that, on this occasion, the deposit guarantee fund has been placed within a larger package, in which there are also risk reduction measures, limitation of the exposure of the sovereign debt banking or reinforcement in supervisory mechanisms. "Some countries were not interested in the guarantee fund but in other areas and that has allowed progress," these sources argue.

"We can no longer afford this blockade. This affects the functioning of our internal market. And it affects the confidence of the citizens of the European Union in our ability to solve problems," Scholz said in his conference. The minister has confirmed the fear of some countries, including Germany, that this scheme may encourage some countries to move debts from national to European level. But in his opinion, the package of measures clears risks. "European deposit insurance is seen as an instrument to promote equal opportunities among banks in all EU countries," he added.

The German proposal, in fact, is accompanied by other measures: first, the strengthening of the banking supervision regime and crisis management, which would include a harmonization of insolvency legislation; second, greater banking integration in Europe by reducing the capital and liquidity requirements for the subsidiaries of a financial group in times of bonanza; third, the reduction of sovereign debt and delinquent portfolios in bank balances, and finally, a common tax base for companies at Community level.

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