A cura di Tiziano Sini
The pandemic that has hit Europe and the rest of the world lately with its consequent state of emergency, has lead the European public debate to stagnation; at the same time this exceptional situation has offered some new insights.
The necessity to plan our future and guarantee a certain economic stability, has shed light on the urgency to find a definitive solution for the reform of the ESM European Stability Mechanism[1]. To this day this has been a hotly debated topic which has split countries and the political debate on considering whether to benefit from the Pandemic Crisis Support[2] -mainly for sanitary purposes - or not.
The ESM reform has been delayed by one year, but things should be settled during the next European Council occurring on December 10th.
About the reform
The main goal is not only to overcome the critical aspects of the ESM itself, but also to include protective measures for the European bank system. These are crucial steps that will guarantee the reinforcement of the eurozone and above all the relaunch of a very important "lending toolkit". Despite the emergency state we are witnessing, the debate is still open.
The starting point for this reform is to establish a transparent loan-system in the eurozone, that will provide precautional credit lines. This is much more functional than delayed interventions made available for countries in serious financial difficulties.
Another primary aspect of the reform is the interest in completing it through the introduction of protective measure related to the banking structure, such as the backstop. This is a truly exceptional protection, conceived within the The Single Resolution Fund (SRF), which can be used whenever the fund itself were insufficient to face a state of emergency, thus providing an additional -extraordinary- help.
The new initiative should be introduced two years ealier than planned, in 2022 instead of 2024, thanks to the fact that the European banks strove to reduce the so-called non performing loans.
Moreover the credit lines will be simplified and reinforced, in particular the Precautionary Conditioned Credit Lines (PCCL), made available for the country members of the eurozone; these credit lines will ensure solid economic foundations in case of shock. Access is reserved for members of the European Stability Mechanism whose financial and economic situation is stable and whose public debt is "sustainable". This aspect will raise many problems in the future, also in relation to the situation that countries are currently facing with the pandemic crisis, above all due to a debt position that is difficult to sustain.
Lastly the Memorandum of understanding will be abolished. Its popularity is related to Greece's economic rescue, well known for its very strict reforms.
This will be replaced by the letter of intent aimed at ensuring full compliance of the Stability Pact. This means that the use of funds and their disbursement will be closely related to the maintenance of the agreed commitments and therefore the required restructuring will no longer be automatic[3].
At the same time, whenever the critic scenario might lead to an interruption of loans, the country will have the possibility to access another emergency credit line: Enhanced Condition Credit Line (ECCL). The disbursement will imply more stringent commitments, such as the signing of a Memorandum of understanding, as well as the increased monitoration of the European Commission. [4].
Time for thoughts
So far we have described the structure of the proposal, which will almost certainly be confirmed after intense negotiations at national and European level. However criticism and concerns that have characterised the public debate for years now, seem to persist. It is necessary to take into account that the intitiave, although urgent, has induced some perplexities from the very beginning - since Meseberg's declaration, when the franco-german agreement had shed a light on the possibility of reforming the Mechanism.
One of these perplexities is related to the repetitive use of the PSI concept (Private Sector Involvement), the restructuring of public investments held by private individuals, although confined to a type of extraordinary intervention; it generates a negative perception recalling what happened in Greece back then.
The introduction of collective action clauses (single limb), in order to facilitate debt restructuring, and the delicate relationship between the Commission and ESM - considering the latter an intergovernmental organization - have aroused scepticism.
In this case the solution implies the creation of a "control-room" led by the two subjects which will allow the overcome of the so-called Troika (IMF, European Commission and ECB), one of the most strongly criticized aspects.
Fortunately, these important problems were overcome by the reform proposed in July 2019 and by the decisions negotiated by the Euro-group.
On the balance, we must admit that the plan inherently presents problems, but at the same time the new prerogative would hardly justify a rejection of the whole. On the contrary, this might generate negative effects on the European negotiations on the Next Generation EU, which -at the moment- are far from simple [5]
Translated by Valeria Pasquali
Fonti consultate per il presente articolo:
[1] https://www.econopoly.ilsole24ore.com/2020/12/07/approvare-il-mes-senza-usarlo-e-unillusione/
[2] https://www.repubblica.it/economia/2019/11/30/news/che_cos_e_il_mes-242286887/
[3] https://24plus.ilsole24ore.com/art/mes-rete-stati-e-banche-ecco-come-funzionera-ADXHfj5
[4] https://www.repubblica.it/economia/2019/11/30/news/che_cos_e_il_mes-242286887/
[5] https://www.ilsole24ore.com/art/la-riforma-mes-non-e-perfetta-ma-all-italia-puo-solo-far-comodo-ADpBYs6
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European Council Consiglio dell'Unione Europea Unione Europea European Union ue EU europe Europa bank banca European Commission Commissione Europea MES ESM reform Riforma