http://globaleconomicanalysis.blogspot.com/2012/12/eu-punts-on-creating-timetable-for.html
Thursday, December 13, 2012 5:56 PM
EU Punts on Creating Timetable for Fiscal and Banking Unions
Those looking for a step in the right direction today can find it in the Financial Times Live Blog which announces "EU drops timetable for creating eurozone fiscal and banking union".
EU heads of state and government have started gathering in Brussels even though their summit isn’t scheduled to begin until 5pm. Last night, however, Herman Van Rompuy, president of the European Council, circulated a final draft of the summit communiqué, and we got our hands on it.
The 12-page document differs from a version circulated last week in several significant ways – most notably completely dropping a timetable for creating a fiscal and banking union in the eurozone.
Van Rompuy’s pet idea of getting eurozone countries to commit to signing binding contracts with Brussels on economic reform programmes – essentially forcing upon all euro members the kind of detailed plans now only agreed with bailout countries – has also been significantly watered down. In the original version, EU leaders would have explicitly endorsed the idea. In the new version, they are simply cited as an idea that “could” enhance ownership of reform programmes.
Rather than come to any conclusion on the issue, the draft says it will be addressed again at a March summit “after an informal process of consultations with Member States”.Baby Steps
Similarly, Van Rompuy seems to show somewhat less ambition towards creating a eurozone budget, once one of the cornerstones if his reform plans. In the previous text, he explicitly talked about creating a so-called “fiscal capacity” sometime after 2014. Now, that language is removed entirely, and the draft says any discussion of “a shock absorption function” – the new, more limited eurocratese for what was once a eurozone budget – are to be put off indefinitely:
“These issues will take more time and will require in-depth consultations with the Member States.” Even though José Manuel Barroso, the European Commission president, has vowed to introduce plans for an embryonic eurozone budget sometime next year, Van Rompuy’s draft suggests it won’t be taken up until “after the election of a new European Parliament and the appointment of a new Commission” – which will not happen until the end of 2014.
This is a step in the right direction, but only a baby step. What's really needed is a plan and timetable to dismantle the eurozone. Don't count on that any time soon. In fact don't count on it ever.
Regardless, a eurozone breakup is in the cards anyway. This baby step, although it will not lead to plans to do what is necessary, is nonetheless symbolic of the insurmountable problems to get agreements from all the players.
The structural problems and unemployment are so bad now, that even if the key players agree, some politician will eventually stand up, proclaim debts and the treaty null and void, and be elected.
Mike "Mish" Shedlock
and....
http://www.zerohedge.com/news/2012-12-13/primer-europes-common-bank-supervisor
A Primer On Europe's Common Bank Supervisor
- Consumer protection
- Czech
- European Central Bank
- Eurozone
- fixed
- Germany
- Gross Domestic Product
- Monetary Policy
- Prudential
- SocGen
The Eurozone was once again engaged in burning the midnight oil, in yet another futile endeavor, this time setting the stage for a common bank supervisor in the face of the ECB, which is somehow supposed to "regulate" Europe's thousands of banks. That this was a total practical dud can be seen in the response of the EURUSD to the news. However, for those interested in the theoretical nuances, whose actual implementation has once again been kicked into the future, here is a quick and dirty primer from SocGen.
Europe agrees single bank supervisor
EU Summit to focus on further steps towards banking union
European finance ministers finally hammered out a series of compromises to agree the terms for a common bank supervisor in another marathon session that extended into the early hours of Thursday morning. Under the agreement, the ECB will supervise banks with asset values of over €30bn or 20% of their home country’s GDP. The agreement is expected to be finalised by March 2013, and the new Single Supervisory Mechanism will start to become operational in March 2014. The agreement effectively clears the decks for the EU Heads of State meeting today to focus on the next steps toward a European Banking Union.
ECB to supervise European banks
Under the agreement, the ECB will have direct responsibility for banks with assets of more than €30bn, or representing more than 20% a country’s national output. This definition leaves most of Germany’s savings banks under the control of German national authorities. Every euro area country will have at least three banks directly supervised from Frankfurt. However as part of the compromise, the ECB retains the power to intervene in any bank and deliver instructions to national supervisors. The SSM will be composed of the ECB and national competent authorities. The ECB will be responsible for the overall functioning of the SSM. Under the proposals, the ECB will have direct oversight of euro area banks, although in a differentiated way and in close cooperation with national supervisory authorities. Non-euro area member states wishing to participate in the SSM will be able to do so by entering into close cooperation arrangements. Pierre Moscovici, the French finance minister, expressed his approval for what he said was a “good working balance”.
Direct recapitalisations by the ESM unlikely before 2014
However, Germany also won concessions on the timing of implementation, so that no fixed deadline is included in the text for the ECB to take direct oversight of the biggest banks. There remains, however, a series of specified goals meaning the system could be up and running by March 2014. As such, Wolfgang Schäuble, the German finance minister, madeplain that one of the key purposes of the reform – to allow the ESM to directly recapitalized banks – was out of the question until well into 2014. “Again and again we have created expectations we cannot fulfil and that is very dangerous. We should be modest,” Mr Schäuble said, in a clear warning to countries that regard the creation of a central supervisor as a stepping stone to more risk-sharing. However, again reflecting the spirit of compromise, other leaders stressed that existing rules already allowed direct recapitalizations to take place so long as moves were subject to unanimous approval. The new supervisory mechanism should be fully ready by 1 March 2014, with about 200 banks automatically qualifying for direct ECB oversight, EU Financial Services Commissioner Michel Barnier, said at the press conference following the agreement. In the interim, the ESM could aid banks directly, using its own procedures and asking ECB supervisors to step in, he said.
Euro area ‘outs’ win double majority argument
Beyond agreement amongst euro area members, the other major point of friction was over the rights of non-euro area countries. Euro area countries eventually dropped their objections to UK-led demands for a “double majority” principle at the European Banking Authority while a series of provisions was also included in an attempt to address the legalrestrictions that prevented non-euro area members of the banking union holding full voting rights within the ECB. However, these proved insufficient for Sweden and the Czech Republic, which made clear they would not join the banking union in the near future.
Monetary policy decisions to be separated from supervision within the ECB
The ECB's responsibility for monetary policy is to be strictly separated from supervisory tasks to eliminate potential conflicts of interest between the objectives of monetary policy and prudential supervision. To achieve this, a supervisory board responsible for the preparation of supervisory tasks would be set up within the ECB. Non-eurozone countries participating in the SSM would have full and equal voting rights on the supervisory board.
The board's draft decisions would be deemed adopted unless rejected by the ECB Governing Council. National supervisors would remain in charge of tasks not conferred on the ECB, for instance in relation to consumer protection, money laundering, payment services, and branches of third country banks. The EBA would retain its competence for further developing the single rulebook and ensuring convergence and consistency in supervisory practice.
Overnight Sentiment: The Printer Is Now In Draghi's Court
Submitted by Tyler Durden on 12/13/2012 - 06:45Baltic Dry Bank of England Ben Bernanke BOE Central Banks CPI Credit Suisse European Central BankEurozone Fail Greece Gross Domestic Product ItalyJapan Jim O'Neill Jim Reid Monetary Policy NikkeiNominal GDP None President Obama Unemployment
Why the lack of follow through? Because, according to preliminary desk talk, just as we predicted yesterday now that the Fed has reengaged the QEasing machine, the ECB will too have to intervene and ease on its own once again to push the EURUSD lower (as otherwise the internal devaluation for most European countries will be simply unbearable). Which means one thing: the time to drag the Spanish insolvency out of cryogenic sleep is coming, and if Rajoy still refuses to request a bailout, he will get some much needed assistance from Frankfurt to make up his mind, allowing the ECB to inject hundreds of billions into the market and in doing so to keep up with the Fed or else risk dropping too far behind in the global race to debase (with a footnote that in Europe, a drop in the currency always raises redenomination risk now and going forward).
EU Leaders Praise ECB Supervision Agreement, Market Shrugs
Submitted by Tyler Durden on 12/12/2012 - 23:01European Central Bank None
Rightly so, the FX and equity futures markets are almost entirely ambivalent at the farce that at 430am in Brussels, the EU leaders announce a compromise agreement on ECB banking supervision:
- *BARNIER HAILS 'HISTORICAL ACCORD' ON ECB BANK OVERSIGHT
- *BARNIER SAYS EUROPE HAS SHOWN 'CAPACITY TO TAKE ACTION' (yay)
- *MOSCOVICI SAYS SUPERVISION IS FIRST STEP IN EURO BANKING UNION
- *MOSCOVICI SAYS ECB WILL BE SUPERVISOR FOR ALL BANKS
- *SCHAEUBLE SAYS AGREEMENT REACHED ON EU30B OVERSIGHT THRESHOLD
- *BARNIER SAYS SUPERVISOR IS FUNDAMENTAL FOR FINANCIAL STABILITY
- *BARNIER SAYS ECB OVERSIGHT NEEDS PREPARATION OF AT LEAST A YEAR (umm)
- *ECB COUNCIL WON'T HAVE FINAL SAY ON BANK REGULATION: SCHAEUBLE (oops)
Of course, none of this matters - what is the ECB going to tell them "de-lever more!", "buy less of your sovereign's debt?" Until there are pooled deposit guarantees (nein nein nein) this is irrelevant and markets are treating it thus - no matter the PR efforts.
http://www.guardian.co.uk/business/2012/dec/13/eurozone-crisis-live-breakthrough-deal-banking-union
The Eurogroup has issued its statement on Greece and one on Cyprus. Some highlights...
Re Greece:
The Eurogroup welcomed the result of the debt buy back operation, which will lead to a substantial reduction of the Greek debt-to-GDP ratio.The Eurogroup reaffirmed that this, together with the initiatives agreed by the Eurogroup on 27 November and full implementation of the adjustment programme, should bring Greece's public debt back on a sustainable path, to 124% of GDP in 2020. Greece and the other euro area Member States are prepared to take additional measures, if necessary, to ensure that this objective is met.
Re Cyprus:
We are confident that agreement on the programme could soon be reached, and we call on the international institutions and Cyprus to finalise negotiations accordingly.
Updated
Lagarde confirms IMF's participation in Greek aid
The IMF chief, Christine Lagarde, has confirmed that she will recommend the disbursement of aid to Greece.
She also says additional debt relief for Greece was possible.
I expect that a Board meeting could take place in January, for the first review of Greece's Fund-supported program.
These steps will ensure that Greece’s debt-to-GDP declines to 124% by 2020 and to substantially below 110% by 2022, she adds.
Christine Lagarde at press conference in Colombia earlier this week. Photograph: EITAN ABRAMOVICH/AFP/Getty ImagesBersani says Berlusconi is out to distract the public
The head of Italy's centre-left Democratic party, Pier Luigi Bersani, said Berlusconi's goal is to distract the public, but that he will lose.
Bersani, whom polls tip to be Italy's next leader, said the rigour brought in by current prime minister, Mario Monti, "must continue".That sounds a touch contrary to his assertion yesterday that Monti should not run in the next elections. He also warns that Germany is at risk of a bubble with negative real rates.
The Italian Democratic party leader, Pier Liugi Bersani, looking angry earlier this month. Photograph: TONY GENTILE/REUTERSGreek unemployment rate hits 24.8%
And still the Greek unemployment rate continues to climb. Data showsalmost one in four are unemployed, with joblessness up at 24.8% in the third quarter from 23.6% in the second. That is up from 17.7% this time last year.
Unemployment among young people (between 15 and 24 year olds) is 56.6%
Bullet points of the EU banking deal
Sticking with the banking union, Eurointelligence has provided another helpful summary of what has been agreed so far...
- The ECB will be the regulator of banks with assets of more than €30bn, or banks constituting at least one fifth of their home country’s GDP. The thresholds were chosen to include the three biggest banks in each country. The estimates last night range from a total number of 150 to 200 banks in the eurozone.
- The ECB can intervene in smaller banks (under a procedure that has yet to be made known, or yet to be worked out)
- The governance structure will consist of a separate supervisory body, the ECB governing council as final arbiter, and a steering committee to solve disagreement.
- Agreement to be finalised in February 2013 – as this requires support from the European parliament. The single supervisory mechanism (SSM) kicks in March 2014.
- The EBA will continue to be in charge of harmonising rules at EU-level, and there will be safeguards for the non-eurozone members through a double majority – one inside the banking union, one outside.
- No direct bank recapitalisation by the ESM until at least 2014.
It also poses some questions that still need answering:
- Is the €30bn a fixed nominal sum, will it get adjusted over time?
- Will banks automatically switch regime once they exceed the total? How and when this is determined?
- Does the threshold include off-balance sheet vehicles? If No, then the arrangement would give banks an incentive to circumvent the rule;
- Can the ECB decide whether to usurp authority over a smaller bank on its own, or does it need approval of any other body?
- Do banks have legal redress to such a decision under national law?
- Can the SSM give, and enforce, instructions to national supervisors?
- Does the SSM have full access to all information held by national supervisors?
.
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