The ESM treaty reform in its current shape is not worth the paper it is written on. The Eurogroup (dec 4) and Euro Summit (Dec 13) should postpone its agreement and set out (with the new commission) a broader, more balanced and more ambitious package. consilium.europa.eu/en/meetings/eu…
The ESM reform was meant to: (i) communautarise its governance and reduce the scope for national vetoes, (ii) improve its capacity to act pre-emptively and (iii) arrange the backstop to the single resolution mechanism. It has failed on all counts.
The governance remains entirely intergovernmental and the powers of the ESM are expanded in a memorandum of cooperation that weakens the European Commission and the accountability to the European Parliament. ec.europa.eu/info/business-…
The precautionary credit lined is only accessible to countries meeting a set of strict ex ante criteria for example excluding today France, Italy, Spain and even Finland, therefore completely failing to make the ESM more flexible. bruegel.org/2018/12/does-t…
The backstop remains contingent on the approval of national govts/parliaments, and even in emergency to that of the Bundestag. It is meant to backstop a single resolution mechanism that is legally and politically unable to put a bank even of modest size in resolution.
Italy is therefore right to object, but it is late and focuses its criticism on two secondary elements: (i) the introduction of single limb CACs, (ii) the expansion of the role of the ESM in PSI agreed in the Dec 2018 EUCO, which together would make debt restructuring more likely
A constructive criticism would rather focus on the need to change the governance of the ESM profoundly, end its destructive competition with the European Commission and bring it under the full accountability of the European Parliament.
A bigger EMU reform package that includes (i) the communautarization of the TSCG (which is a forgotten treaty obligation), (ii) progress on banking union as proposed by the recent German Non Paper, (iii) meaningful progress on the BICC and the european unemployment insurance.
Without these elements, the ESM reform is not a progress, it is a regression. Europe is built in small, gradual steps, but they have to be steps in the right direction. It is sometimes preferable to return to the drawing board rather than get trapped in fictitious progress.
The backstop remains contingent on the approval of national govts/parliaments, and even in emergency to that of the Bundestag. It is meant to backstop a single resolution mechanism that is legally and politically unable to put a bank even of modest size in resolution.
Italy is therefore right to object, but it is late and focuses its criticism on two secondary elements: (i) the introduction of single limb CACs, (ii) the expansion of the role of the ESM in PSI agreed in the Dec 2018 EUCO, which together would make debt restructuring more likely
A constructive criticism would rather focus on the need to change the governance of the ESM profoundly, end its destructive competition with the European Commission and bring it under the full accountability of the European Parliament.
A bigger EMU reform package that includes (i) the communautarization of the TSCG (which is a forgotten treaty obligation), (ii) progress on banking union as proposed by the recent German Non Paper, (iii) meaningful progress on the BICC and the european unemployment insurance.
Without these elements, the ESM reform is not a progress, it is a regression. Europe is built in small, gradual steps, but they have to be steps in the right direction. It is sometimes preferable to return to the drawing board rather than get trapped in fictitious progress.
